Under the Alternative Minimum Tax (Alt-Min), certain tax deductions, called tax preference items, are given limited effect.
Depreciation is a tax preference item. The law was passed in 1969 in order to prevent a few wealthy individuals from escaping income taxes completely by virtue of their many deductions.
It was pretty much a public relations ploy and was very popular with most Americans. The rules never changed to account for inflation, however.
The annual income of a wealthy individual in 1969 is a normal two-earner income in today’s world. This means that average Americans are being caught in the Alt-Min trap. The New York Times estimates that by 2010, nearly thirty million Americans will have to pay additional taxes because of Alt-Min.
The Alt-Min calculations are complex. Fortunately, the IRS provides an electronic worksheet, called the “Alternative Minimum Tax Assistant for Individuals,” at www.irs.gov. It lets you manipulate your numbers to see what happens. Do not worry, your identity is protected on this website.
No information will be collected and matched against your actual tax returns later. You can also download Tax Topic 556, “Alternative Minimum Tax,” for a better understanding of the rules.