While there was much discussion in the media over tax rates for 2013, the Alternate Minimum Tax (AMT) exemption for 2012 was still to be resolved. Fortunately the last minute ‘fiscal cliff bill’ tackled the AMT exemption, making it permanent and tied to inflation. This was a relief for many taxpayers who would have been hit with additional taxes if the AMT fix was not included.
As we are often asked, what is the impact of AMT when you do a 1031 exchange? We are happy to report that in a 1031 exchange the taxes on capital gains (profit and depreciation recapture taxes) are deferred and not added to your current income. Like with the 3.8% Medicare tax, mentioned in an earlier blog, doing a 1031 exchange does not add income and make you liable for the AMT.