Can lower deductions make AMT go down?!?!

[John]

I was all done doing my taxes on Taxcut, when I realized I
had summed my medical expenses incorrectly, and the actual
figure was lower. When I put the new figure in, my taxes
went down.

I tracked the "problem" down to a reduction in the AMT, and
that to line 43 on form 6251. When my deductions went down,
my income went up, and my AMT went down. This does not make
any sense to me.

Specifically,
Original Correct
Tax, Line 41/1040 1313 1355
AMT, Line 42/1040 1665 1538
Line 30/6251 33584 33584
Line 31/6251 2413 2327
Line 43/6251 25709 27102

Line 43/6251 comes from Schedule D, and gets there from 1040
line 40 (Taxable income).

I have followed everything back, and while it is very
confusing, I think TaxCut did it right.

So, my original question, can claiming lower deductions
actually reduce my taxes, or am I doing something very
wrong?

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[Paul A Thomas]

"John" <Jo...@john.com> wrote

> So, my original question, can claiming lower deductions
> actually reduce my taxes, or am I doing something very
> wrong?

With AMT, you end up paying the higher of, AMT or the
regular tax, so, it's highly possible that you are still in
the AMT bracket and that it went down.

--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net

[Arthur L. Rubin]

Paul A Thomas wrote:
> "John" <Jo...@john.com> wrote

>> So, my original question, can claiming lower deductions
>> actually reduce my taxes, or am I doing something very
>> wrong?

> With AMT, you end up paying the higher of, AMT or the
> regular tax, so, it's highly possible that you are still in
> the AMT bracket and that it went down.

I considered that, but it looked like the total of
regular tax and AMT tax went up, also. I think
perhaps the OP didn't update ALL the information
on the recalculated AMT capital gains worksheets.

[ed]

"John" <Jo...@john.com> wrote:

> I was all done doing my taxes on Taxcut, when I realized I
> had summed my medical expenses incorrectly, and the actual
> figure was lower. When I put the new figure in, my taxes
> went down.
>
> I tracked the "problem" down to a reduction in the AMT, and
> that to line 43 on form 6251. When my deductions went down,
> my income went up, and my AMT went down. This does not make
> any sense to me.
>
> Specifically,
> Original Correct
> Tax, Line 41/1040 1313 1355
> AMT, Line 42/1040 1665 1538
> Line 30/6251 33584 33584
> Line 31/6251 2413 2327
> Line 43/6251 25709 27102
>
> Line 43/6251 comes from Schedule D, and gets there from 1040
> line 40 (Taxable income).
>
> I have followed everything back, and while it is very
> confusing, I think TaxCut did it right.
>
> So, my original question, can claiming lower deductions
> actually reduce my taxes, or am I doing something very
> wrong?

John. Yes, claiming lower deductions CAN actually reduce
total taxes. There are times, usually due to the effect of
the phase-out of itemized deductions on line 28 of Schedule
A, that even though your Regular tax is reduced by the
deductions, puting the deduction on line 2 through 5 of
form 6251 increases the TMT more than the deduction reduces
your regular tax. A tax program should allow you to adjust
for this, that is select whether to itemized deductions or
take the Standard Deduction. You need this choice because,
it might affect Credits that may or may not offset AMT and
which can be carried forward if denied in the year you are
making the Deduction choice. You have doen the first step in
determining whether you are affected. Now yo must make the
choice of whether to Itemize or take the Standard Deduction
( forgoing the specific deduction is usually not
productive), and does that chokce impact you in some other
way. Remember that virtually all credits denied are carried
forward and they may or may not offset AMT in future years,
and, of course, if you are filing MFS you have your spouse's
net to consider. You might need a spreadsheet based
program to see where the problem is created for you, but it
most surely originates on line 2 through 5 of 6251 being a
different amount than what you entered on Schedule A (before
the phaseout on line 28).

Ed

[Arthur L. Rubin]

The schedule A line 28 adjustment is backed out for
AMT purposes on line 6 of form 6251. I don't see any
way that an increase in itemized deductions could
increase the TMT. The election to take the
standard deduction, rather than itemizing deductions,
could increase or decrease the regular tax, but
always (as far as I can tell) increases the TMT.

There may be an interaction with the AMT foreign
tax credit which increases the TMT, or there could
be an error in the AMT capital gain worksheets
(they are more complicated than last year, after
all), but I really can't think of any way that
increasing deductions could decrease TMT.

[John]

> There may be an interaction with the AMT foreign
> tax credit which increases the TMT, or there could
> be an error in the AMT capital gain worksheets
> (they are more complicated than last year, after
> all), but I really can't think of any way that
> increasing deductions could decrease TMT.

I have an email into TaxCut (and have sent them my tax
return on which a deduction does increase TMT). If they
actually get back to me I will let you know.