Form 6251 – Alternate Minimum Tax
What is FORM 6251
Also called Alternate Minimum Tax (AMT), it’s a form that has to be filled by everyone to calculate their AMT and determine whether they are suppose to pay it as well or not. It is applicable to those taxpayers who have received income from certain sources that have more favorable treatment under U.S. tax law and also to those taxpayers who qualify for certain deductions under U.S. tax law. It has different set of computations than the regular tax.
Purpose of the Form 6251
U.S. government has realized that some taxpayers who are quite wealthy, but have managed to keep their tax bills to a minimum in a legal manner due to certain preferential tax treatment. They have designed another way to tax them using AMT, so that they have to pay minimum amount of tax. Now taxpayers have to calculate their payable tax amount two times, once using regular method and then using this new AMT method.
When are you subjected to AMT
Form is not very big. It has two pages with a total of 54 questions. You are subjected to pay AMT amount, if your calculated AMT value is more than regular tax liability.
Contents of Form 6251
As mentioned before, there are 54 lines in total. Out of which, question one to 29 are related alternative minimum taxable income. It includes line items that come under the home mortgage expenses, investment income, and business expenses. Question 30 to 35 are related to tax credits and exemptions. Rest of the lines are used to compute the total tax using maximum capital gain rates.
Five common things that usually cause AMT liability
1) Personal Exemption: Exemptions that you claim for your kids, spouse and dependents are included in AMT liability
2) Standard Deduction: Claimed by 70% of American taxpayers, standard deductions are included in AMT liability
3) State & Local Taxes: You often claim deductions for local tax and state tax when you do itemizaton. It is also included in AMT liability.
4) Interest on 2nd Mortgages: Mortgage borrowings used for building and buying the house is also included in AMT liability.
5) Medical Expense: AMT allows lesser medical deduction than regular tax