AMT and cap gains.
I actually went through this last December to decide whether
to take some gains (didn't, should've :( ). You're right,
the form is a stinker, even by IRS standards.
In a nutshell, you do in fact pay only 20% on long term gains.
Sort of. They are actually exempt from the AMT, again
sort of.
What happens is that they count toward AMT far enough to
remove all of your personal exemptions, many itemized
deductions, all the low tax brackets, and other "preference"
items that AMT is supposedly out to get.
I don't recall the deduction break down -- you don't lose
everything, and it seems to me the standard deduction is
a lower limit.
After that hit, the gains themselves
are taxed at 20%, but you then end up paying whatever the
AMT rate is on everything els
The upshot is, at some point (just about 300,000 if my
recollection is correct), you really do start paying
a marginal 20% rate on long term gains, and above that
on an unlimited amount of gains. Up to that
point the effective marginal rate is higher because
the higher your income the more deductions, etc, you lose
on a sliding scale as they become subject to AMT.
I verified this with my lawyer, who
tells me it's new with the tax reform act
last year, btw.
Watch out for an AMT whammy on employee stock options, though.
Details vary with the option.
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