i don't know how they define income either. i would guess AGI. in my own case, i had no earned income. just interest income, dividend income, and STCG/LTCG income.
It's not so clear to me that so many people with large long-term capital gains will be paying AMT taxes. Or that if they do, the amount will be so very much greater than the 15% rate.
i don't think it will affect most people simply because LTCG is not a significant part of most people's income. but that doesn't mean it won't be significant for individuals who make their living largely off capital gains. i still don't understand it very well, but i know at least i was caught and the tax increase was considerable (compared to what i was expecting). i guess part of it depends on how you define "large" LTCG.
but as to your second point--that the amount will perhaps not be much more than the widely advertised 15% LTCG rate... according to that second link you posted, which i have read before i think and which i found fairly depressing (and confusing :), if you are caught by AMT your LTCG rate on the increment over which you are "caught" is effectively increased by almost 50%--going from 15% to 22%:
"Result? Under the AMT, adding $1,000 of long-term capital gain can increase your tax by as much as $220, consisting of the $150 tax on the gain itself and the $70 that hits you because the exemption amount is reduced. In effect, you're paying 22% on the gain under the AMT and 15% on the gain under the regular income tax, so a big capital gain can lead to a big AMT bill." |
