Definition of Alternative Minimum Tax (AMT)

The alternative minimum tax or AMT is a method used to calculate the tax liability for some high income earners. The AMT calculation adds back the deductions taken for certain tax preference items. The IRS requires that the tax payer pay the higher of the two tax liability calculations.

Applying "Alternative Minimum Tax (AMT)" to Securities Exams:

The IRS defines certain items that receive beneficial tax treatment must be added back into the taxable income for some high-income earners. These items include:

  • Interest on some industrial revenue bonds
  • Some stock options
  • Accelerated depreciation
  • Personal property tax on investments that do not generate income
  • Certain tax deductions passed through from DPPs
  • On your exam if you see a question relating to the AMT it will most likely require you to identify which item would be subject to the alternative minimum tax.

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