AMT and the Zero Capital Gains Tax in 2008?

[moperry]

I am retired and took a lump sum pension and do not need to withdraw anything for a couple years. I can arrange things so I only have about $6,000 taxable income in 2008 (dividends and interest). I want to take advantage of the 3-year window where there will be no income tax on long term capital gains. I plan to liquidate $200,000 worth of stock in 2008, which has a gain of roughly $75,000. My income will come from the $200,000 stock liquidation plus the interest and dividend income (totaling about $80,000). There will be zero income tax due on capital gains in 2008 thru 2010 (as long as my taxable income stays within the 15% tax bracket). After taking our standard deductions and personal exemptions, we will have zero taxable income in 2008. So, my question: will my wife and I be subject to the Alternative Minimum Tax in 2008?

 

[RetireeRobert]

I am retired and took a lump sum pension and do not need to withdraw anything for a couple years. I can arrange things so I only have about $6,000 taxable income in 2008 (dividends and interest). I want to take advantage of the 3-year window where there will be no income tax on long term capital gains. I plan to liquidate $200,000 worth of stock in 2008, which has a gain of roughly $75,000. My income will come from the $200,000 stock liquidation plus the interest and dividend income (totaling about $80,000). There will be zero income tax due on capital gains in 2008 thru 2010 (as long as my taxable income stays within the 15% tax bracket). After taking our standard deductions and personal exemptions, we will have zero taxable income in 2008. So, my question: will my wife and I be subject to the Alternative Minimum Tax in 2008?

I haven't the slightest. Best I can think of, is wait till Congress does its thing on AMT legilsation (Senate bill now goes to house), THEN, get tax software package incorporating AMT legislation and run your projected income/deducts thru the software. it should tell you if AMT applies or not.

 

[FinanceDude]

I am retired and took a lump sum pension and do not need to withdraw anything for a couple years. I can arrange things so I only have about $6,000 taxable income in 2008 (dividends and interest). I want to take advantage of the 3-year window where there will be no income tax on long term capital gains. I plan to liquidate $200,000 worth of stock in 2008, which has a gain of roughly $75,000. My income will come from the $200,000 stock liquidation plus the interest and dividend income (totaling about $80,000). There will be zero income tax due on capital gains in 2008 thru 2010 (as long as my taxable income stays within the 15% tax bracket). After taking our standard deductions and personal exemptions, we will have zero taxable income in 2008. So, my question: will my wife and I be subject to the Alternative Minimum Tax in 2008?

Don't do anything big until the Congress figures out what they are going to do.........

 

[OAG]

I to, do not have the slightest idea either, but what Congress is working on, to my knowledge, relates to 2007 tax returns. OP is asking about 2008. So maybe this new solution will really ONLY apply to 2007 taxes and the entire mess will have to be revisited by the Congress next year for 2008 Taxes.

BTW Tax Act has published a 2007 tax preparation program which is available at their web site (File Taxes Online - Do Taxes FREE - File Taxes With TaxACT). It is a early edition (cannot be used to file returns) but does have current law for AMT included. If you are not liable for AMT under the current law you may not be under the new revision - but how can tell for sure? BTW TA does have a FREE version of the program.

 

[FIRE'd@51]

The AMT exemption for tax year 2006, was 62,550, and it is expected that the AMT patch for 2007 will extend this exemption at this level. Even if Congress let it go back to the 2002 level (prior to the Bush tax cuts), the exemption would be 45K. Since, either of these exemptions would be larger than the standard deduction (10,700) plus two personal exemptions (6,800), you should have no tax liability under the AMT, since the tax rates for qualified dividends and LT cap gains would be taxed at your same rate (0%) under the AMT.

So, as I understand it, your plan should work fine for 2008, since any attempt by the Congressional Dems to change the cap gains/div rates would likely be vetoed by President Bush. The uncertainty is really in years 2009 and 2010 if the Dems win the Presidency and continue to control both houses of Congress, in which case the Dems could repeal the Bush tax cuts.

 

[ERD50]

Isn't it just ridiculous how complex tax planning/paying is? Let me rephrase that - tax planning is impossible, because they don't pass the laws in a timely fashion so that you can plan, and you don't know what future tax changes may disrupt those plans. What's the point of all this mess for honest people just trying to comply with the law?

AMT is a great example of stupid complexity. Help me out if I got this wrong, but....

AMT was passed to make sure rich people were paying some taxes and didn't avoid their obligations by utilizing other tax code (commonly referred to as 'loopholes', but they really are just other complex tax codes that were passed with supposedly good intentions).

Now, with no inflation adjustment, AMT is hitting people it was not intended to hit.

So Congress just layers complexity on top of complexity, making matters worse. If the rich were using 'loopholes', then close the loopholes - don't throw more tax code on top of it (with more unintended consequences). Fix the root cause.

Compare that to:

A) File an annual statement declaring your filing status.
B) Cash your monthly pre-bate check.
C) At the cash register, hear: Sir, that will be $59.63 including all Federal, State and local sales taxes.

period.


-ERD50

 

[RetireeRobert]

I to, do not have the slightest idea either, but what Congress is working on, to my knowledge, relates to 2007 tax returns. OP is asking about 2008. So maybe this new solution will really ONLY apply to 2007 taxes and the entire mess will have to be revisited by the Congress next year for 2008 Taxes.

Very true, BUT many of the tax software packages allow you to do planning for the following year. so the 2007 tax year software may well have a planning/projecting section that lets you project for 2008.

You are right of course about Congress screwing around and "maybe" 08 would get different rules than 07. But, what else is new?

 

[RetireeRobert]

Isn't it just ridiculous how complex tax planning/paying is? Let me rephrase that - tax planning is impossible,

...........................Compare that to:

A) File an annual statement declaring your filing status.
B) Cash your monthly pre-bate check.
C) At the cash register, hear: Sir, that will be $59.63 including all Federal, State and local sales taxes.

period.-ERD50

FAIR tax, value added tax, GST---I'll go for that. In leiu of any income tax at all.

 

[frayne]

A copy and paste from H&R Block site;

Alternative Minimum Tax (AMT) Amounts


The AMT applies if it exceeds the regular tax (that is, the tax from the tax tables, rate schedules, etc.). You may have to pay the AMT if you:

• Claim a large number of exemptions.
• Itemize deductions and claim large deductions for taxes and/or miscellaneous deductions subject to the 2% of AGI limit.
• Take out a home mortgage or equity line of credit and use the proceeds for a purpose other than to buy, build, or substantially improve your home.
• Exercise incentive stock options and did not dispose of the stock in the year of the exercise.

Other less common items may apply. See the instructions for Form 6251.

 

[free4now]

I am retired and took a lump sum pension and do not need to withdraw anything for a couple years. I can arrange things so I only have about $6,000 taxable income in 2008 (dividends and interest). I want to take advantage of the 3-year window where there will be no income tax on long term capital gains. I plan to liquidate $200,000 worth of stock in 2008, which has a gain of roughly $75,000. My income will come from the $200,000 stock liquidation plus the interest and dividend income (totaling about $80,000). There will be zero income tax due on capital gains in 2008 thru 2010 (as long as my taxable income stays within the 15% tax bracket)

It sounds like you are married and therefore your 15% tax bracket is up to about $65k. If you were single like me you would only be able to get the 0% CG rate on up to $32,500 of income in 2008.

Something to consider is that if the Democrats get back in power they could not only repeal the 0% CG rate for 2009 and 2010, but they could raise the higher CG rate from 15% back up to 20% or even 25%. If that happens then you may wish you had realized as many capital gains in 2008 as possible rather than trying to delay them to 2009 and 2010. Tax planning is hard because it's complicated by politics!

I'm recently ER'd and 2008 will be the first year that I'll be able to have less than $32k taxable income if I want. I was going to use that opportunity to do some Roth IRA conversion on the cheap, but since I learned about these 2008 0% CG rates I'm thinking that realizing CGs may be a better way to go.

I don't think AMT will be a concern for people like us who would get most of our income from capital gains. My understanding is that capital gains are not one of the preference items that trigger AMT.

 

[nvloanguy]

I know this thread is ancient- but I was perusing the net for info on investing in zero cap gains property- which I figured was real estate related only-for example

Zero Capital Gains Rate

I had no idea the government was mulling something like this back in 07-what is the current status of congress enacting this?