AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
AMT sweet spot management
Posted by: Justin, December 14, 2017 06:04PM
AMT sweet spot is explained very well at

[www.kitces.com]

In short, this is where your marginal rate within AMT zone drops from 35% down to 28% (due to phase-out ending) and before AMT zone ends which hikes the marginal rate to 39%+.

When I had looked at the graph in that article for a single filer it suggests ~$250,000 of sweet spot range (from ~$336k to ~$588k of income). Unfortunately this does not seem to be generally the case and is highly dependent on particulars whether sweet spot even applies.

Purpose of this post is to share my findings as well as to see if someone finds a flaw in them. The goal is to take maximum advantage of the sweet spot in a given year.

Simplified scenario: single filer able to prepay property taxes to increase Schedule A deductions as needed. Also able to bring in as much ordinary income as needed into the current year from the next. Assume no interest, no dividends, no cap gains/losses, and no other entries. Just an ordinary income and a flat 4% state+local tax on that income.

Here is what I am finding (based on 2016 tax year law) when only changing property tax on Schedule A:

$0k property tax, AMT sweet spot range is 335,298 - 338,186 (i.e. less than 3k range)
$5k property tax, AMT sweet spot range is 335,298 - 366,901 (i.e. $31,603 range)
$10k property tax, AMT sweet spot range is 335,298 - 398,550 (i.e. $63,252 range)

So, it seems like if you want to take advantage of a sweet spot in above scenario, you'd prepay property tax as much as possible and get AMT sweet spot range expanded by ***much larger*** amount.

Is there any downsides to this approach?

For example, prepaying State/Local income tax may seem like a similar idea but if you get a refund for the year, you have to then deduct all the benefit you got this year from the next year's taxes. So, I don't believe prepaying state/local taxes really helps here much. However, I don't believe similar considerations apply to prepaying property taxes. Can anyone confirm this?

Re: AMT sweet spot management
Posted by: triad, December 28, 2017 09:15PM
Have you ever actually filled out the AMT form?

You don't appear to know which lines come from where.



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