In our last article we talked about the alternative minimum tax item, resulting from depreciation of business or rental property. A direct corollary of that issue is the AMT item that results from any subsequent sale or other disposition of such property. Critical to minimizing a taxpayer’s AMT is an understanding of the relationship between these two items.
When property is disposed of, a taxpayer calculates the gain or loss based on the difference between the selling price and his tax basis. For something like a stock or a bond, tax basis is the amount originally paid for the investment – that is all that is needed. This same concept also applies to the sale of business or rental property, but with one important difference – depreciation. In the case of depreciable property, tax basis is the amount originally paid, but then reduced for any depreciation taken.
The tax basis … Read More