What is the Alternative Minimum Tax?



Brent Vandekerckhove

Financial Advisor & Portfolio Manager


You may have heard rumblings about changes to the “Alternative Minimum Tax,” and have perhaps asked yourself, what is this and how does it affect my own situation?

To start off, the Alternative Minimum Tax, or “AMT,” has been around since 1986. It is a minimum tax imposed on individuals who earn substantial “preferred income” (think capital gains) and/or claim certain exemptions, deductions, or credits (think charitable donations) in a year. Think of it like having two tax returns, your regular return and your “alternative return.” You end up paying the AMT or regular tax, whichever is higher (in most cases it’s the AMT). It also only applies to individuals and does not apply to corporations. In a nutshell, the AMT essentially allows fewer deductions, exemptions, and credits than under ordinary tax rules.

AMT paid in the year can be carried forward to reduce your regular taxes over the next seven years if certain conditions are met. This may not always be the case (if you die for example) and many accountants find that AMT is generally not recovered in the seven-year carry forward period.

The changes are as follows. Under the proposed rules, 100% of capital gains (up from 80%) will be fully included as income in the AMT calculation. This will also be the case for employee stock option benefits. The new AMT rules will also increase the capital gains inclusion rate for donations of publicly traded securities to 30% from 0%.

Now, how could this affect you? Well, it could make it harder to save on taxes if you’re selling a business, making charitable donations, and claiming these deductions and credits on your tax return. 

Why is this happening? The current federal government has drafted legislation to implement these changes starting in 2024. I’m not a math whiz, but according to the budget document the changes are expected to generate $3 billion in tax revenue over the next five years. (If you want some light reading, feel free to read the proposed budget changes to AMT for yourself.)


If you take one thing away from this, be prepared to pay up if you have large capital gains income, charitable donations, or other preferential income in 2024 or beyond. I would recommend you speak with your accountants and our team on this matter in order to plan accordingly now and into the future.
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