Not so Easy

Alternative Minimum Tax (AMT) can be payable when income for an individual is not taxable as ordinary income, or capital gains. This can occur if you are using your lifetime capital gains exemption, have limited partnership income and various other types of income or shelter. The AMT kicks in to ensure that some tax is paid on your income. Once paid, over the next seven years it can be recouped from income tax payable, that is it can reduce your future tax bill. Generally speaking limited partnership losses that reduce your income, eligible dividend income and non-taxable capital gains can give rise to a situation where there is less or no tax payable under the ordinary tax calculation, but there is substantial tax payable as alternative minimum tax.

Keep your eye on the time

Generally speaking, any income tax remedy or tax arbitrage remedy will be a remedy for AMT; however loss carry forwards are not effective in remedying this tax. It can be considered a prepayment of tax in certain circumstances, so the remedy may be just to have a longer time horizon. In the event the AMT arises because of capital gains, any capital losses in your portfolio could offset the AMT. Ordinary Income losses, from borrowing money for example, is also an effective remedy.