Real Estate and the Alternative Minimum Tax – Even the President of the USA Gets Tripped Up

May 16, 2012 by  Filed under: Taxes 

Owning real estate is a major source of pain felt by folks stuck in the Alternative Minimum Tax, as the nondeductibility of property taxes is one of the single biggest reasons individuals are hit by this tax. Even the President of the United States has been bitten, as we can be observed in some recently-released income tax returns. But is living in the White House doing this? It can’t be that, as the President is not the homeowner. Instead, the problem stems from any President’s choice to keep connections with a vacation home in his original neighborhood.

Property taxes

State and local taxes, including income taxes as well as property taxes, are a tax item found on the returns of nearly 95 percent of all folks caught in the Alternative Minimum Tax. This is due to the fact that, while state and local taxes are an allowable itemized deduction for purposes of the Regular Tax, not one dollar of these taxes is allowed as a deduction in computing the AMT.

The President’s AMT dilemma

Even after moving into the White House, our current president chose to keep his former home, located on the south side of Chicago. As such, it is he who remains responsible for making the monthly mortgage payments as well as for the property taxes on the home. It’s a decent-sized house, with a value something in excess of $1 million. Take Chicago’s and Illinois’ relatively high property tax burden, along with a hefty state income tax burden, and the President finds himself writing a fairly sizable AMT check each year.

The President’s AMT planning opportunity

The President’s planning opportunity to lessen his tax burden is the same as it is for every other AMT payer – taking advantage of any opportunity to accelerate the payment of property taxes, or possibly to delay paying them if that works better, the deduction should be put in a year he is not in the Alternative Minimum Tax. Like many individuals, our current president is an individual taxpayer who moves in and out of the AMT from year to year. Because of this, thousands of dollars of Alternative Minimum Tax could be saved by using this simple planning strategy.

Other AMT issues

Interest paid on a mortgage used to acquire a president’s home is deductible both for the Alternative Minimum Tax as well as for the Regular Tax, so that generally is not a part of the problem. A large AMT item that does hit, however, is the phaseout of the AMT exemption. Because the President’s income was relatively high, the entire exemption amount of $74,450 that he and his wife otherwise were entitled to on their joint return was eliminated in its entirety.

Conclusion

Everyone potentially is subject to the Alternative Minimum Tax. While in prior years our current president was not hit by it, a combination of a high level of income and the state and local tax itemized deduction ended up triggering the nasty beast. Like many taxpayers, discovering this at the time of preparing the tax return is too late to do anything about it for that year. The good news, however, is that there is still plenty of time to do planning for 2012’s taxes to minimize the potential impact of the AMT hitting once again.

George Bauernfeind is with AMTIndividual.com, providing analysis, customized strategies, and an online dual tax calculator / planner to help you reduce your Alternative Minimum Tax. Visit http://amtindividual.com or http://amtblog.com for access to this tax software and to read more tax planning articles on the Alternative Minimum Tax.

Article Source:
http://EzineArticles.com/?expert=George_Bauernfeind

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