What is alternative minimum tax?

It is calculated by starting with your regular taxable income and adding the following list of preference items to calculate a alternative taxable income and then exemptions are given to derive  AMT

And you have tax preference items:

1.axes Deducted on schedule A

2.Investmet Interest expense

3.Depletion (difference AMT and Regular)

4.Net operating loss 

5.Tax exempt interest

6.Exercise of incentive stock options (excess of AMT income over regular tax income)

7.Disposition of property (difference between AMT and regular tax gain or loss)

8.Depreciation on assets placed in service after 1986 (difference between regular tax and AMT)

9.Approximately 9 other uncommon preference items

Exemptions are as follows:

1.$113,400 if filing married/joint or qualifying widow with dependent.

2.$72,900 if filing single or head of household.

3.$56,700 if filing married/separate

How does AMT work?

If you carry preference items as deductions you must check to see if you are paying a minimum amount of tax set by the tax code. Form 6251 is used to calculate the alternative minimum tax which will be added to your regular tax. You add back the standard deduction if you don't itemize and if you do itemize you will add back the preferences as shown.