AMT Preference Items, 2002

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© TAX ANALYSTS. Reprinted with permission.

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To calculate the individual alternative minimum tax (AMT), taxpayers add a number of preference items and adjustments to their regular taxable income. The larger the dollar value of those preferences and adjustments, the more likely a taxpayer is to be subject to the AMT.

The two largest preference items are state and local taxes and personal exemptions. That is why taxpayers with many children in high-tax states are especially prone to the AMT. State and local taxes amounted to 51 percent of all AMT preference items, adding $42 billion to taxable income of those affected (90 percent of all AMT taxpayers). Personal exemptions comprised almost 22 percent of preferences, and miscellaneous itemized deductions, which include some employee expenses and legal fees incurred in some tort cases, amounted to about 20 percent.

Note that some adjustments are negative, such as refunds of state and local taxes. (The AMT deduction simply negates the inclusion of refunds in regular taxable income.)

Note: This report is available in its entirety in the Portable Document Format (PDF).

The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, provides independent, timely, and accessible analysis of current and emerging tax policy issues for the public, journalists, policymakers, and academic researchers. For more tax facts, see http://www.taxpolicycenter.org/taxfacts.

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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