Series 50: Alternative Minimum Tax

Alternative Minimum Tax

Qualified private activity bonds are also known as alternative minimum tax bonds because, unlike public purpose bonds, they are subject to the alternative minimum tax. Some investors (but not all) must pay federal income tax on their earnings from AMT bonds. Taxes on AMT bonds apply to relatively well to do bondholders in the higher income brackets.

The alternative minimum tax (AMT) is a method of calculating income taxes. It was created as a backstop to make sure wealthy taxpayers could not avoid paying any income tax at all. The AMT is often called a “parallel” tax system, since it is not truly an alternative, optional way of calculating income taxes. Instead, taxpayers are required to calculate their alternative minimum taxable incom