Singles and heads of households: $50,600 ($51,900)
Joint filers and surviving spouses: $78,750 ($80,750)
Married persons filing separately: $39,375 ($40,375)
The act did not change any of the other basic rules for the AMT. This means that the two tax rates of 26 percent and 28 percent continue to apply. Similarly, the adjustments and tax preference items included in the AMT computation have not been changed.
The act also made permanent the rule allowing personal nonrefundable tax credits to be used as an offset to the AMT. This means such tax credits as the dependent care credit, the nonbusiness energy credit, and the adoption credit can be used to reduce or eliminate AMT liability.
Looking ahead, individuals potentially subject to the AMT will be able to take appropriate actions. For example, there is no tax savings from accelerating state and local tax payments otherwise due in 2014 into 2013 if the AMT will apply; such taxes are nondeductible. Timing the exercise of incentive stock options (ISOs) is important and, in light of the certainty about the exemption amount, possible.
Return of Pease and PEP
For 2010 through 2012, there was no limit on the amount of itemized deductions and personal exemptions that individuals could claim on their returns. Starting in 2013, this changes. High-income taxpayers are now subject to limitations on these write-offs.
Pease Limitation. Starting in 2013, there is an overall limit on itemized deductions (Code Sec. 68). This means that itemized deductions (with exceptions listed below) are reduced by 3 percent of the amount exceeding the applicable threshold. Named after Congressman Donald Pease, who sponsored the cap in Congress, the Pease limitation cannot reduce itemized deductions by more than 80 percent. The threshold varies with filing status. For 2013, the applicable thresholds are:
Heads of households: $275,000
Joint filers and surviving spouses: $300,000