Get IRS Publication 5439 2020-2023

The AMT is indexed yearly for inflation. For the 2023 tax year, it's $81,300 for individuals and $126,500 for married couples filing jointly. Higher income levels for exemption phaseout. Phaseout for the 2023 tax year starts at $578,150 for individuals and $1,156,300 for married couples filing jointly.

Unlike typical municipal bonds, the payment of principal and interest on private activity bonds is not the responsibility of the issuing government agency. Instead, it is the responsibility of the private business receiving the proceeds.

The principal difference between municipal bonds and Treasury bonds, aside from the credit considerations, is that municipal bonds are tax-exempt, that is interest is exempt from federal income taxation.

When calculating the additional tax owed on the next dollar of capital gains, AMT taxpayers first pay the statutory 15 percent rate on the gain directly.

“Private activity” municipal bonds are subject to the federal alternative minimum tax. In 1986, the Tax Reform Act required that interest on private activity bonds (other than 501(c)(3) obligations) issued after August 7, 1986 be included in the calculation of AMT income for federal tax purposes.

Alternative minimum tax If you have to pay AMT and hold such a bond, your interest income would generally be taxed at the applicable AMT rate—which could be 26% or more, if you're in the AMT exemption phase-out range. Effectively, that means the yield on a municipal bond paying 3.50% would drop to roughly 2.6%.

Zero-coupon municipal bonds, which are bought at a discount because they do not make any interest or coupon payments, don't have to be taxed. In fact, most aren't. As long as you're investing in a local municipal bond, taxes won't be a concern. This provides a big advantage over taxable bonds, even with lower interest.

To find out if you may be subject to the AMT, refer to the Alternative Minimum Tax (AMT) line instructions in the Instructions for Form 1040 (and Form 1040-SR). If subject to the AMT, you may be required to complete and attach Form 6251, Alternative Minimum Tax – Individuals. See the Instructions for Form 6251PDF.