How is the AMT calculated?
As its name implies, the AMT is an alternative way to calculate your income tax bill. You start with your taxable income and add back several items, including personal exemption deductions; the standard deduction if you don’t itemize; state, local, and property tax deductions; medical expenses, unless they exceed 10%, rather than 7.5% of AGI; municipal interest income from certain private-activity bonds; certain business-related items if you own a business, rental property, or interest in a partnership or S corporation; and the difference between the market price and exercise price of incentive stock options. From this calculation, you subtract the AMT exemption amount, which increased in 2002 to $49,000 (up from $45,000) for married taxpayers filing jointly and $35,750 (up from $33,75) for single taxpayers. However, the exemption is phased out by 25 cents for every dollar of AMT taxable income over $150,000 for married taxpayers filing jointly and $112,500 for single taxpayers. The re