Alternative Minimum Tax Question

[wuapinmon]

So, I'm trying to do my taxes using TaxACT, which I've used for years, but this year I'm puzzled. We refinanced the mortgage at the end of September (thanks again, cougjunkie for the info), and the tax software is telling me this:

Interest and qualified mortgage insurance premiums paid included in the total for a mortgage whose proceeds were used to refinance an eligible mortgage. Do not include interest or qualified mortgage insurance premiums paid on the part of balance of the new mortgage that exceeded the balance of the original mortgage immediately before it was refinanced (or, if smaller, the balance of any prior refinanced mortgage immediately before that mortgage was refinanced):

On both mortgages I paid:
$7357.58 in interest

5665.46 Old mortgage
1692.12 New mortgage

I paid no PMI on the old one because of some program that paid it for us. I paid $108.98 in PMI on the new one last year.

However, the software is telling me this:

Provide the following information related to your home mortgage or home equity interest so the system can calculate how much of the total $6,663 (mortgage interest, home equity interest, seller financed mortgage interest, and qualified mortgage insurance premiums) should be used as an adjustment for purposes of the alternative minimum tax (AMT). The amount of the adjustment shown on Form 6251, is the difference between the total number above and the entries made below.

I'm not sure where the $6,663 number came from. The balance on the old mortgage when we closed it was $129,700. The starting balance of the new one was $134,632, or $4932 more than the old mortgage.

So this line in the first quote:
Do not include interest or qualified mortgage insurance premiums paid on the part of balance of the new mortgage that exceeded the balance of the original mortgage immediately before it was refinanced

has me wondering if I'm supposed to figure out what 4.875 x $4932 / 12 months = and then subtract that from the total interest paid.

[wuapinmon]

I'm guessing the collective silence means you're as flummoxed as I am.

[happyone]

I'm guessing the collective silence means you're as flummoxed as I am.

yep - I would guess that whichever of the Eddie's is the accountant might be able to help. It might cost you though

[FMCoug]

Yes, it is of the devil.

I know that wasn't your question but when I saw AMT that is the first thing that came to mind.

[wuapinmon]

So, I'm on hold with the IRS helpline. They are very friendly. Anyway, after I explained my problem to the first agent, she said, "I'm going to need to transfer you to the 'Complex Individual Issues Department.'" I started laughing because of the multiple meanings of that department's name. She started laughing too and said I was the first person who had ever seen the humor in the name the way she does.

Complex Individual Issues Department. Lady, you have no idea.

[pelagius]

Three full payments mortgage payments for the new loan? Is the base loan payment before any taxes, pmi, etc = 712.50? Is 4.875 the APR or the effective annual rate? Does the 4.875 include the PMI?

[wuapinmon]

Three full payments mortgage payments for the new loan? Is the base loan payment before any taxes, pmi, etc = 712.50? Is 4.875 the APR or the effective annual rate? Does the 4.875 include the PMI?

Total payment = $950.36 +$50 extra we pay every month. It is posted the same day.

The interest + principal is $712.48. We made three payments + $50 (x3) in 2010 on that mortgage. The effective annual interest rate is 4.875%

I don't know if it includes the PMI, but that (PMI) costs me $54.49 every month.

Thanks for the help.

[pelagius]

Couple of things, the AMT is going to be irrelevant for you since you are not going to pay it (unless I don't understand what is going, which is possible). It is not obvious to me were 6,663 comes from (What I would be worried about is if the software is only deducting 6,663 in general ... if it is just using it for the AMT calc, no big deal). Software bug? Can you check what the 1040 schedule A looks like (or the mortgage interest worksheet for schedule A)?

The interest totals you report make sense given the loan, and APR you report. Well, they make sense as long as you only paid a total of 54.49 in PMI (otherwise, I am a bit off and am not sure why). Oh, 4.875% is your APR if 712.48 is your payment. Your true annualized rate is 4.99%

Principal	Payment	Interest at 0.04875	Principal payment	"Interest from > 129,000"
"134,632.00"	762.48	546.94			215.54			22.88
"134,416.46"	762.48	546.07			216.41			22.00
"134,200.05"	762.48	545.19			217.29			21.13

Interest paid	"1,638.20"
PMI		54.49
Total		"1,692.69"

The preceding is how I would figure out how much of the interest is tax deductible. The principal is coming down every month so that amount over 129,000 is smaller each month. Of course, the difference is small. But conceptually that is how I would do it.

[wuapinmon]

The $6,663 number is the reduced number for the business use of our home office. That makes sense. Phew. Also, I double-checked, and there were only two PMI payments made in 2010.

[Moliere]

yep - I would guess that whichever of the Eddie's is the accountant might be able to help. It might cost you though

Thankfully I'm not a tax accountant

The $6,663 number is the reduced number for the business use of our home office. That makes sense. Phew. Also, I double-checked, and there were only two PMI payments made in 2010.

I was perplexed as well but it seems like you found your answer, whcih was that the interest was prorated for some other deduction you are taking on the home. Actually, most of my perplexing was the fact that AMT was being calculated at all. Based on some of your posts (I could be way wrong) I would gather that you aren't at the threshold where AMT kicks in so my advice would be to ignore whatever the AMT calculation is doing unless it penalizes you.

FYI, business use of a home office is a red flag for auditors

[wuapinmon]

Thankfully I'm not a tax accountant



I was perplexed as well but it seems like you found your answer, whcih was that the interest was prorated for some other deduction you are taking on the home. Actually, most of my perplexing was the fact that AMT was being calculated at all. Based on some of your posts (I could be way wrong) I would gather that you aren't at the threshold where AMT kicks in so my advice would be to ignore whatever the AMT calculation is doing unless it penalizes you.

FYI, business use of a home office is a red flag for auditors

Oh, I definitely don't have to pay the AMT, I just have to turn in the form because I had a mortgage that wasn't deduction eligible AND I itemized. With pelagius's excellent help, and 178 minutes on the phone with the IRS--time I passed figuring out my basis in the 100 shares of YUM stock I donated to the Church, but that I bought as fractional shares over 7 years--I was able to get things figured out. I didn't have to pay any AMT, but I still submitted the 6561 form with my return to show that I had done due diligence. My return was accepted this morning.



So, I turned in an ethical and legal return that was more complex than anything I've ever had to do before. I understand why a good accountant is worth the money.

As to home use of my house, I'm not worried. It's legitimate, and we've been claiming it for the last six years, all on the up-and-up. Plus, I don't claim depreciation.

[Mormon Red Death]

Oh, I definitely don't have to pay the AMT, I just have to turn in the form because I had a mortgage that wasn't deduction eligible AND I itemized. With pelagius's excellent help, and 178 minutes on the phone with the IRS--time I passed figuring out my basis in the 100 shares of YUM stock I donated to the Church, but that I bought as fractional shares over 7 years--I was able to get things figured out. I didn't have to pay any AMT, but I still submitted the 6561 form with my return to show that I had done due diligence. My return was accepted this morning.



So, I turned in an ethical and legal return that was more complex than anything I've ever had to do before. I understand why a good accountant is worth the money.

As to home use of my house, I'm not worried. It's legitimate, and we've been claiming it for the last six years, all on the up-and-up. Plus, I don't claim depreciation.

man our tax system is messed up. Even more reason for the fairtax