The
Alternative Minimum Tax has been patched for another year, but the
lateness of the fix will mean late refunds for millions of filers.
This fix is only temporary. Congress must act again next year, or
the AMT exemption amounts for 2008 will revert to year 2000 levels.
In late December, Congress passed the Tax Increase Prevention Act of
2007 (H.R. 3996) and President Bush signed it into law. TIPA patches
AMT for 2007, but does not offset the cost of the patch by increasing
taxes elsewhere.
Under the new law, AMT exemptions amounts (before phaseout) for 2007 are:
- $66,250 for married filing jointly
- $44,350 for single and head of household
- $33,125 for married filing separately
Phaseout rules are:
- $66,250 less 25% of alternative minimum taxable income
(AMTI) exceeding $150,000; zero exemption when AMTI reaches $415,000
(married filing jointly and surviving spouse)
- $44,350 less 25% of AMTI exceeding $112,500; zero exemption when AMTI reaches $289,900 (unmarried individuals)
- $33,125
less 25% of AMTI exceeding $75,000; zero exemption when AMTI reaches
$207,500 (married filing separately); however, for MFS filers, AMTI is
increased by the lesser of $33,125 or 25% of the excess of AMTI over
$207,500, without regard to the exemption reduction.
Under the new law, the combined total of the credits listed below
will be limited to the regular tax liability reduced by the foreign tax
credit and the Alternative Minimum Tax. What this means is that under
TIPA, the credits below may offset both regular tax and AMT. But as
with the AMT exemption amounts, the fix only applies to 2007.
- Child and Dependent Care Expenses (Form 2441 on 1040/Schedule 2 on 1040A)
- Credit for the Elderly and Disabled (Schedule R)
- Mortgage Interest Credit (Form 8396)
- Child Tax Credit
- Hope and Lifetime Learning Education Credits (Form 8863)
- Qualified Adoption Expenses (Form 8839)
- Lower Income Saver?s Credit (Form 8880)
- Residential Energy Credits (Form 5695)
- District of Columbia First-Time Homebuyer Credit (Form 8859)
What TIPA Means for the 2008 Filing Season
For the most part, TIPA will not delay the start of the 2008 filing
season, unless taxpayers are filing the following five credits.
IRS will begin processing returns in mid-January (including those
with Form 6251, Alternative Minimum Tax) except for the five forms
listed above. The IRS targeted February 11 for when returns with these
forms may be submitted. This date allows the IRS time to update and
test its system to accommodate the AMT changes without major
disruptions to other tax season operations. The IRS estimates that as
many as 13.5 million taxpayers will not be able to file returns until
the February date.
