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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 9705
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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how does large capital gain effect

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how does large capital gain effect amt

Hi, it really depends on what the gain is from...

Gain in of itself isn't the issue.

Gain on the DISPOSITION of PROPERTY, for example, is one of the adjustment items

The gain or loss recognized on the disposition of property may be different for regular tax and AMT because the property the taxpayer disposes of has a different basis for regular tax and AMT.

This can occur for a lot of reasons, including differences in depreciation deductions taken under the two systems for the property and in the case of stock received through the exercise of an ISO, the difference in basis caused by the ISO AMT adjustment.

Because basis may be higher or lower for regular tax than it
is for AMT, the adjustment may be positive or negative. You includes
the adjustment in calculating AMTI on Form 6251, line 17.

I'll go into the details of the ISO example below, but first maybe some context would help:

Generally speaking, certain adjustments are made to your taxable income to see if the tax under THAT system would be less than the tax without making the adjustments;

Here are the AMT adjustments from Code section 56:

The limitation on overall itemized deductions.

Miscellaneous itemized deductions subject to the 2% floor.

Standard deduction and personal exemptions.

Certain state, local and foreign taxes.

Medical expenses.

Certain interest (including home mortgage and investment interest).

Depreciation deduction.

Mining exploration and development costs.

Long-term contract expenses.

Alternative tax net operating losses.

Amortization deductions for pollution control facilities.

Gain or loss on the disposition of property.

Alcohol fuel credits
Circulation expenses.

Research and experimental expenses.

So, again it really depends on whether the gain is in relation to one of the adjustment items... let's go back to that stock option, for example:

For regular tax, under Code Section 421, a taxpayer that exercises an
incentive stock option is not required to include the difference between the option price and the fair market value of the underlying stock at the time of exercise in income in the year of exercise.

BUT, for AMT, this difference has to be included in income in the year of exercise. So, the amount of the difference is an AMT adjustment added back in calculating AMTI on Form 6251, line 14.

But, again, gain itself doesn't affect AMT ... Whether or not something may be treated as gain however could be... depending on whether the gain came from a preference item or adjustment.

If you can tell me a little more about the situation that caused the gain, maybe I can help you work through it.

Hope this helps,

Let me know...

Lane and 3 other Tax Specialists are ready to help you

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