Curous.. are you going to pay the 2nd installment of property tax this year ?

[artillery77]

I'm passing on it, though it's a good idea for most people. I had pretty low W-2 income this year as I was giving hospice care for much of the year. For next year we're considering moving the home into a business to keep deductibility and separate it out. Anyone think renting my neighbor's garage and they renting mine for the same amount each month is pushing it too far?

[cardinal2007]

Originally Posted by ryman554

Then please tell me how to get out of it, since I cannot find a way, nor can any of my colleagues.

Note that a mortgage is irrelevant, since it is the one(?) deduction that AMT allows. For us normal wage earners, you're basically paying 26 (or 28)% flat tax (modulo capital gains/qualified dividends rates) after a sizeable deduction.

A first (and pretty good for wage earners) approximation to the AMT is to take the AGI, subtract your AMT standard deduction and your mortgage interest. Multiply by 0.26. Ouch.

If your income is mostly capital gains, I can see AMT not applying. Otherwise, what am I missing, I am honestly curious! I've made much more, but the AMT still keeps hitting me.

Pretty easy to see, you actually need to be making 200k, with a property over 600k AND include the phase out for the AMT deduction to hit the AMT, and that is 1.3k more than you would pay in taxes otherwise:


Say you make:

200k/yr, payed 15k in income tax to CA, 8k in property tax, 20k in mortgage interest.
Total deductions 43k, taxable income is 153k after removing personal exemption. Taxes owed: ~$35.7k

AMT: 200k - 20k = 180k - 53k standard deduction = 127k * .26 = ~33k
AMT (more realistic adding deduction phase out) 180k - (53-15) = 142k * .26 = ~37k (WE HAVE A WINNER!!)



At 150k:
150k/yr, payed 9.5k in income tax to CA, 8k in property tax, 20k in mortgage interest.
Total deductions 37.5k. taxable income is 118.5k after removing personal exemption (4k). Taxes owed: ~26k

AMT: 150k -20k = 130k - 53k standard deduction = 77k * .26 = ~20k
AMT (more realistic adding deduction phase out) 150k -20k = 130k - (53-2.6) = 79.6k * .26 = ~20.7k



At 100k:
100k/yr payed 4.8k income tax to CA, 8k in property tax, 20k in mortgage interest.
Total deductions: 32.8k taxable income is 62.3k, taxes owed: ~11.53k

AMT: 100k - 20k = 80k - 53k standard deduction = 27k * .26 = ~7k.


The guy making $150k would love to ONLY be paying AMT.

In SC Co. with assessments and everything property assessed around 600k 3X your cutoff is at 8k/yr.
Only way to hit the AMT is to have property that is pretty expensive, or have income so high the phase out is noticeable on the AMT deduction, PLUS income taxes to CA are high, or property taxes have to be higher, like a 1M+ assessment, even then I doubt it, at 150k the difference between AMT and regular taxes was over 5k.


I think you're likely being too generous on who pays AMT, cashing out RSUs and making over 200k/yr is actually a nice position to be in, but that AMT deduction phase out looks to be a PITA. These are for single people btw, married get 84k deduction on AMT.

[ryman554]

Originally Posted by cardinal2007

Pretty easy to see, you actually need to be making 200k, with a property over 600k AND include the phase out for the AMT deduction to hit the AMT, and that is 1.3k more than you would pay in taxes otherwise:


Say you make:

200k/yr, payed 15k in income tax to CA, 8k in property tax, 20k in mortgage interest.
Total deductions 43k, taxable income is 153k after removing personal exemption. Taxes owed: ~$35.7k

AMT: 200k - 20k = 180k - 53k standard deduction = 127k * .26 = ~33k
AMT (more realistic adding deduction phase out) 180k - (53-15) = 142k * .26 = ~37k (WE HAVE A WINNER!!)

......

I think you're likely being too generous on who pays AMT, cashing out RSUs and making over 200k/yr is actually a nice position to be in, but that AMT deduction phase out looks to be a PITA. These are for single people btw, married get 84k deduction on AMT.

Yeah, your analysis seems consistent with my observations, perhaps I was a bit too gloomy on my initial post. That's what I get when I don't run numbers myself.

However, who has a 600k assessment on a house these days? I envy that. Mine is over 1M, and perhaps that's what I'm seeing. Serves to push down the AMT to lower income. I still posit if you're at or above 150k, you should think twice about prepaying property tax now. The benefit is likely not there.

[cardinal2007]

Originally Posted by ryman554

Yeah, your analysis seems consistent with my observations, perhaps I was a bit too gloomy on my initial post. That's what I get when I don't run numbers myself.

However, who has a 600k assessment on a house these days? I envy that. Mine is over 1M, and perhaps that's what I'm seeing. Serves to push down the AMT to lower income. I still posit if you're at or above 150k, you should think twice about prepaying property tax now. The benefit is likely not there.

I guess I was trying to even out the difference between those that bought 30 years ago to today, taking into account prop 13. Most houses in San Jose itself didn't seem to go past 1M until very recently, while some western suburbs passed that point long ago.

[LuvSouthOC]

Originally Posted by ryman554

Yeah, your analysis seems consistent with my observations, perhaps I was a bit too gloomy on my initial post. That's what I get when I don't run numbers myself.

However, who has a 600k assessment on a house these days? I envy that. Mine is over 1M, and perhaps that's what I'm seeing. Serves to push down the AMT to lower income. I still posit if you're at or above 150k, you should think twice about prepaying property tax now. The benefit is likely not there.

I did the numbers and prepaying should help a little.