Re: A metaphysical discussion about the AMT and Capital Gains--how the AMT nullifies long term capital gains


"raylopez99" <raylopez99@xxxxxxxxx> wrote
Thanks Paul Thomas--very interesting about the
phase-outs. I wish I Had talked to you earlier,
since an actual situation I faced was a $2M
capital gain that was tax-deferred since the AMT
was believed* to be a tax at ordinary income
rates of 28% (instead more real estate was
bought in a Starker exchange, which turned out
to be a bad short-term decision). In fact, not to
obligate you to answer, but I'm curious why
(since I still have to do the tax calculations) your
calculation for a $1M capital gains is a little less
than 15%.




Some of the taxable income is taxed at lower income tax rates.

If there's nothing else but capital gains, some of what gets taxed will be
at less than 15%.




* if you work in the field as a tax preparer, just to
show you the actual level of sophistication in the
field--or the actual extent of dishonesty--the
reason more real estate was bought was because
the person 'rendering' financial advice was a real
estate broker who told the person in question
(it wasn't me) "oh, you don't want to pay the highest
rax rate [28%] on that $2M long-term capital gains
from real estate do you?


Maybe I didn't catch that the gain was from real estate. The depreciation
changes the factor, but not much. The gain would flow through a 4797, then
maybe to schedule D and then to the 1040.




Better if you defer the tax by buying some other real
estate via a 1031 Starker exchange!" Of course the
key was the advisor was a real estate broker who
made a commission on the exchange... I had advised
the people in question to talk to a certified financial
advisor or competent tax preparer, but they were
concerned with the fee...penny-wise, pound foolish.




My advice would be the same if the plans were to buy another piece of real
estate for business/investment purposes from the sale proceeds.

If their purpose was to *cash-out* then a 1031 exchange is wasting money.




And to double the irony the AMT was specifically
discussed, but the real estate broker apparently
gave bad advice.



Clearly you don't take advice from someone with a vested interest in the
outcome.







--
Paul A. Thomas, CPA
Athens, Georgia



.

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