3 Ways the Alternative Minimum Tax Affects Real Estate

The Alternative Minimum Tax is basically a parallel tax system that runs in conjunction with the regular tax system. You may not have heard of it before now because it was originally only directed at individuals with extremely high incomes. However, since it was never indexed to inflation it will be affecting the middle class as of this year.

The regular tax system currently encourages home ownership by allowing deduction on mortgage interest, property taxes, home equity interest and not recognizing gain on the sale of a primary residence, up to $500,000 for a married couple and $250,000 for an individual.

The regular tax system also promotes real estate investing by allowing depreciation to be taken on a straight-line basis over a 27.5 year recovery period for residential income property and a 39 year recovery for commercial property.

The AMT as it currently stands, does away with a lot of these incentives to owning a home or investing in real estate.

  1. It does not allow deductions for real estate property taxes.
  2. It delays depreciation on real estate by increasing the recovery period to 40 years.
  3. Does not allow deductions on home equity lines of credit used for anything other than to improve the home.

About The Author

Jennifer Wollmann

Comments

  1. Jennifer Wollmann, PLLC May 20th, 2008 at 11:03:48 am

    CR,

    Thank you for your question. I am not a CPA and since the AMT is specific to your taxes and deductions, you should consult with an accountant. I believe most of the real estate items that are affected by the AMT are related to the deductions you can take. According to my CPA, the $250,000 gain on your primary residence is an exclusion and is not affected.

  2. CR May 19th, 2008 at 11:37:11 pm

    so if I am subject to AMT resulting from a 200k income and I sell my residence (while qualifying for the 2 of 5 year rule for a net profit of 250k and am married), in the non-AMT case i would have 250k tax-free profit.
    since i am subject to AMT from my income, does the 250k profit from the sale of my home get affected in anyway, that is: how does AMT liability affect the gains incurred from the sale of property qualifying for tax-free sale?

    thank you.

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