Alternative Minimum Tax or AMT in NYC

[showtime]

So I just spoke with my accountant and he's reassured me that the media is making a big fuss for nothing over blue states losing SALT deductions. At the very least, he says it won't affect New Yorkers or at least New Yorkers who are buying your average million dollar plus property. The reason is if you are able to afford a NYC property, you probably were being hit by AMT in the old tax code, which meant you couldn't really deduct SALT anyway! Now since the AMT limit is raised, at least you can deduct $10,000 in SALT.

The Alternative Minimum Tax (AMT) was created in 1969 and subsequently revised in 1982 to target a very small niche of high income US households who were paying little to no income taxes due to various legal tax breaks. The point of this was to make sure that the very highest earners paid some fair amount of tax, as people were outraged nationwide that some completely legal deductions and tax credits at the time were enabling some of the highest earners to completely avoid paying any income tax. So a parallel tax system was designed and high earners who tripped a certain income level threshold would effectively have to do their taxes twice, and pay whichever tax was higher.

The problem was Congress did not build in a cost of living adjustment (COLA) into the AMT. As a result, in 1969 only 155 households hit the AMT income threshold of $120,700 for single filers and $160,900 for married filers. However, due to inflation, by 2015 the IRS said that 4.4 million Americans paid the AMT! How inefficient!

The new tax code raises the AMT limit to $500,000 for single filers and $1,000,000 for married filers. So many New Yorkers will now not have to worry about AMT at all.

[aslan]

This is true. I had a buyer tell me that his offer should be lower recently because he won't be able to deduct property taxes because of the limitation on SALT deductions. I happily explained to him that in fact, he might actually be able to deduct $10,000 in SALT vs zero before because of AMT!

Since he was bidding over $1 million, it was a safe assumption that he made more than the old AMT thresholds to be able to afford a property that size. As a result, he was getting hit by AMT which basically immediately limits your ability to deduct any SALT in the first place. However, now that the Alternative Minimum Tax thresholds are much higher, he'll likely be able to at least deduct the $10,000 limit. Easy argument haha!