The temporary AMT fix expired on December 31, 2006, resulting in a substantial decrease in the AMT exemption amounts to pre-George W levels. Unless Congress acts the AMT exemption amounts for 2007 will be $33,750 for Single or Head of Household, $45,000 for Married Filing Joint, and Qualifying Widow(er), and $22,500 for Married Filing Separate. Plus, the credit for child and dependent care expenses, credit for the elderly or the disabled, education credits, residential energy credits, mortgage interest credit, and the District of Columbia first-time homebuyer credit will no longer be allowed against the AMT.
It is estimated that if the fix is not extended the number of AMT victims will go from 3.8 Million for 2006 to 25 Million for tax year 2007!
While the ultimate correct solution is to totally scrap the AMT and fix the “regular” tax, at this point it is too late in the year to do this properly. So Congress must enact another “fix” to increase the exemption amounts and allow the various personal credits to reduce AMT – and do so quickly so it can be included in the 2007 tax forms and instructions.
On an encouraging note, according to Chairman Charles Rangel the House Ways and Means Committee will hold a hearing on fairness and equity in the Tax Code (an impossible dream?) on Thursday (Sept 6th). The hearing will focus on issues such as the tax treatment of investment fund managers and the impact of the alternative minimum tax on working families.
Speaking of expiration dates, several popular tax breaks are scheduled to expire in 2007. The “above-the-line” deductions for educator expenses and tuition and fees and the option to deduct state and local sales tax instead of state and local income taxes were extended for two years – 2006 and 2007 – at literally the last minute in December 2006. Let us hope that Congress does not wait until the end of 2008 to take action on these items.
This whole idea of making tax breaks temporary, something relatively new, is a real PITA.