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Posted by Bill Woessner on October 29, 2007, 9:13 pm
Is the interest derived from treasury bonds subject to AMT? It's a
really simple question. I thought I'd be able to Google the answer,
but the sources I came across were less than obvious. And I know next
to nothing about AMT.
Thanks in advance,
Bill
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Posted by joetaxpayer on October 29, 2007, 10:28 pm
Bill Woessner wrote:
> Is the interest derived from treasury bonds subject to AMT? It's a
> really simple question. I thought I'd be able to Google the answer,
> but the sources I came across were less than obvious. And I know next
> to nothing about AMT.
>
> Thanks in advance,
> Bill
AMT is an odd thing, and the simple answer to your question is 'yes',
but for that matter, tax-free munis can also be subject to AMT.
AMT is more about what you cannot take as a deduction than what you have
to may tax on, in my view.
I find that all of my property tax does not reduce my tax liability, nor
does much of my state tax. And my LT cap gains are taxed at 22.5%, not
15%. That's my incentive to funnel highly appreciated stock through a
charitable trust fund (Schwab or Fidelity both offer these) to make my
charitable donations go further. I can send that 22.5% to Uncle Sam or
to the Shelter for Homeless Vets, simple choice for a bit of paperwork.
AMT is far more convoluted than anyone here is likely to describe, I
suggest you look at
http://www.fairmark.com/amt/index.htm
and if you have a follow up query, come back. I also continue to
recommend a copy of TurboTax, to play with the numbers and see how any
income or deduction actually impacts your tax liability. It was this
process that made the taxation of Social Security payments pretty clear
to me, and a nice chart came out of that.
JOE
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Posted by Tad Borek on November 7, 2007, 1:02 pm
Bill Woessner wrote:
> Is the interest derived from treasury bonds subject to AMT?
Bill, the lack of info from googling may be in the phrasing of your
question...the answer is yes, Treasury bond interest is subject to AMT,
the only break it receives is exemption from state & local income taxes.
Or put in a more technical way: there are no preference items
(adjustments to the computation of taxable income, when computing AMTI)
associated with Treasury bonds. If you have $500 in T-bond interest on
your regular tax return you'll have the same $500 included when
computing your AMTI (alternative minimum taxable income).
Not that you asked but...some municipal bonds whose interest is
tax-exempt under the regular tax are taxable under AMT. This is an AMT
preference item: "when computing AMTI, start with your regular taxable
income and add in any interest from private-activity municipal bonds."
For someone in the AMT who holds munis (individually, or through mutual
funds or money market funds) that's something to keep an eye on...you
think your bond is tax-exempt, so accept a lower interest rate, then
find out it's actually taxable under AMT.
-Tad
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Posted by on November 7, 2007, 2:05 pm
> Not that you asked but...some municipal bonds whose interest is
> tax-exempt under the regular tax are taxable under AMT. This is an AMT
This has been a surprise for some fund holders where it's
not obvious beforehand what kind of muni bonds a fund may
hold. Several fund houses are now being more careful
about this and about letting folks know what to expect.
ie. Fidelity's Tax-Free Bond Fund (FTABX) and T.Rowe's
Tax-Free Income Fund (PRTAX). Vanguard has specifically
stopped investing in private activity bonds in 13 of its
muni bond funds (though their high-yield one and all
of the "tax-free money market" funds continue to invest
in private activity bond!).
There are others, but the point is - don't just asssume -
check specifically on your fund.
There's a nice piece which talks about this and also lists
quite a collection of closed-end funds (an enormous amount
of muni-bond fund investing is via CEFs) an article I
found at TheStreet.com. Google for
"Your Funds Might Be Exposed to the AMT"
[not that I collected all that much muni money market
income this year, but now I'm a little bit concerned...]
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
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Posted by Bill Woessner on November 7, 2007, 3:26 pm
Just to be clear, interest from US treasury bonds IS subject to the
AMT but there are some bonds (specificially municipal bonds, it sounds
like) which are NOT subject to AMT. So how do you tell whether or not
your specific bond is subject to the AMT? I guess the question is
much more complicated for bond funds, which is what you guys have been
talking about.
Honestly, I'm floored by the answers I'm getting. How is it
consistent that interest from treasury bonds is subject to the AMT but
not interest from (certain) municipal bonds? That just blows my
mind. It seems utterly arbitrary and capricious.
Thanks,
Bill
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