Eight possible triggers for AMT

Hit with AMT? Eight possible triggers to look out for

1. Claiming a High Number of Personal Exemptions

The more exemptions you claim, the more likely it is you'll have AMT liability.

2. Significant State and Local Taxes

The point of the AMT is to cancel out disproportionately high deductions. This means if your state or local income or property taxes are high, you're more likely to be subject to the AMT. Taxpayers in traditionally high tax states such as California, New Jersey and New York tend to pay more AMT than taxpayers in other states.

3. High Levels of Medical Expenses

Since medical expenses push your itemized deductions higher, you may be subject to the AMT if you had a particularly significant amount of medical expenses in one year.

4. Lots of Unreimbursed Employee Expenses

Again, any expense that increases your itemized deductions can result in subjecting you to AMT. If you have a year in which you incurred a lot of unreimbursed employee expenses that were disproportionate to your income, you may be subject to the AMT. You'll have a similar result for other miscellaneous itemized deductions.

5. Exercise of incentive stock options (ISOs)

For years in the 1990s, the exercise of ISOs was nearly a guarantee that you'd be subject to AMT. That's changed a little as the exemption has crept up, but the danger is still there (the same analysis doesn't apply to sales of ISOs).

6. Long-Term Capital Gains

Long-term capital gain is better than ordinary income, right? So it's always better to have long-term capital gains, right? Not necessarily. A large capital gain reduces or eliminates the AMT exemption amount, which can result in your having to pay more tax.

7. Claiming Too Many Tax Credits

Increasing the amount of your tax credits tends to produce a better result than increasing your deductions. This is because credits reduce the amount of actual tax due, whereas deductions reduce the amount of taxable income. But credits do have a downside: The more credits you claim, the more likely it is you'll be subject to AMT.

8. Interest on a Second Mortgage

Interest you pay on a second mortgage that you don't use to improve your personal residence cannot be deducted under the AMT rules. This means that taxpayers who relied on a second mortgage or home equity line of credit (HELOC) to consolidate debts may be out of luck.
This list isn't meant to be exhaustive, just to get you thinking about what items on your tax returns might result in AMT. If you're beginning to think that the AMT is more complicated than you thought, you're not alone.

If you think the AMT might apply to you and you're not sure, try using the IRS AMT Assistant or consult with your tax professional. You can't always avoid the AMT, but there are planning techniques you can use to mitigate the consequences to you come Tax Day.