The maximum AMT tax rate is supposed to be 28%. The maximum capital gain tax rate is supposed to be 15%. However, as you will see from the comments below, taken from an explanatory note sent to a client with his finished returns (a GD extension) - “it ain’t necessarily so”.
“You were once again a victim of the dreaded Alternative Minimum Tax (AMT). While the ‘advertised’ maximum AMT tax rate is 28%, because of the “phase-out” of the AMT exemption you actually pay a flat 35% tax on all of your AMT taxable income.
For each $1,000.00 of additional income you reduce your AMT exemption - and increase your ‘Alternative Minimum Taxable Income’ - by $250.00. $1,250.00 x 28% = $350.00. So $1,000.00 of income costs $350.00 in ATM – hence 35%.
While we are told that qualified dividends and capital gains are taxed at a maximum 15% rate, under AMT in your situation this becomes 22%. $1,000.00 of capital gains reduces your AMT exemption by $250.00. The $1,000.00 is taxed at 15% ($150.00) – but the $250.00 is taxed at 28% ($70.00). The $1,000.00 cost you $220.00 in additional tax ($150.00 + $70.00) – hence 22%.”
Perhaps the most unfair example of this concept is the case of Social Security benefit recipients. In many situations, as I have explained in client memos over and over again, “for every $1.00 in additional income you are taxed on $1.85”.
You should keep this in mind when doing projections and estimates of the tax consequences of financial transaction you are considering.