# I owe AMT. Does this make sense at all??



## kontemplerande (May 1, 2016)

Hi there!

I lived in Sweden throughout all of 2015, but need to file US taxes based on US citizenship. I am using H&R Block, and it is telling me that in spite of paying an enormous amount of taxes in Sweden, and applying the foreign tax credit for all of that, I still need to pay an AMT (alternative minimum tax) of around $400. Does this scenario make sense at all, or are we missing something?

A few numbers might be relevant:

Married filing jointly
Form 1040 Line 38 (adjusted gross income): $170,000
Form 1040 Line 41 (minus std deduction): $157,400
Form 1040 Line 44 (US tax): $27,000
Form 1040 Line 48 (foreign tax credit): $27,000

Based on these number, IRS AMT Assistant tells us that we need to file 6251.

Taxes paid in Sweden: $60,000
Part of gross income from Swedish wages: $155,000
Part from US investment dividends/capital gains: $15,000

We report the US dividends/capital gains in Sweden and pay taxes there, and have then filled out both regular and AMT versions of form 1116 for all of those taxes.

*Why, if our US tax liability is only $27,000, yet we paid $60,000 in Sweden, do we still owe $400 in AMT in the US?* I thought the tax treaty would prevent that?


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## Bevdeforges (Nov 16, 2007)

Best I can do is to refer you to the IRS Tax Topic on the AMT: https://www.irs.gov/taxtopics/tc556.html

They refer you to an AMT Assistant (a program on the IRS website) that may be of some help. Unfortunately, taking the FTC can be a "trigger" in and of itself for the AMT. The overall purpose is to make sure that "high income" taxpayers have to pay "some" tax - though I admit that in your case, it really doesn't seem right with all the tax you pay in Sweden.
Cheers,
Bev


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## santafe (Sep 10, 2012)

I am always have this, it is due to the standard deduction being added back in for the calculation of AMT. Try turbotax again forcing itemized deductions. It should solve the problem.


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## BBCWatcher (Dec 28, 2012)

Also, you should have some U.S. income tax owed on your U.S. source dividends and capital gains. _Then_ you pay Swedish tax on that income (unless the tax treaty says otherwise), applying a credit for the U.S. income tax back onto your Swedish income tax return.

The basic, general principle is you pay the government where the income arose first, then pay the other government the difference (if any) still owed. Not the other way around.


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## kontemplerande (May 1, 2016)

Thanks for these responses! That assistant tells us that we need to file form 6251, and as far as I can tell we've done everything right. But I am wondering if there is something fundamental that we've missed. I thought the tax treaty meant that double taxation would not be possible.



santafe said:


> it is due to the standard deduction being added back in for the calculation of AMT. Try turbotax again forcing itemized deductions. It should solve the problem.


Ah, that's very interesting, thanks for this advice! Our itemized deductions are currently $0 however. But you are indeed correct, even if we had itemized deductions much lower than the standard deduction, it would help us, since our regular tax is fully credited back by the foreign tax credit. But what itemized deductions would we have, not living in the US? Could we for example deduct interest paid for a Swedish apartment bank loan, even though we already deduct that in Sweden?



BBCWatcher said:


> Also, you should have some U.S. income tax owed on your U.S. source dividends and capital gains. _Then_ you pay Swedish tax on that income (unless the tax treaty says otherwise), applying a credit for the U.S. income tax back onto your Swedish income tax return.
> 
> The basic, general principle is you pay the government where the income arose first, then pay the other government the difference (if any) still owed. Not the other way around.


Hmm, we report the US investment income in our Swedish return and pay capital gains tax there (30%). We then re-source this income in the US return by filing separate forms 1116 (both regular and AMT, checking "income re-sourced by treaty"). I believe this is correct in our case, because last year we had tax lawyers do the return for us and that's what they did, and we paid $0 in US taxes. (But last year we did not reach the AMT exemption threshold, so didn't need to consider AMT.)


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## santafe (Sep 10, 2012)

I itemize with zero you do not need to have any itemized deductions you are just not claiming the standard deduction, I go from owing money to getting a refund (child credit) due to AMT. Of course it does use more FTC but I have so much I will never use.


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## kontemplerande (May 1, 2016)

santafe said:


> I itemize with zero you do not need to have any itemized deductions you are just not claiming the standard deduction, I go from owing money to getting a refund (child credit) due to AMT. Of course it does use more FTC but I have so much I will never use.


Hmm, something must differ in our returns then. In my case, the standard deduction is not included in the calculation of the AMT, which means that having itemized deductions of $0 gives exactly the same number for the AMT.

A $5000 mortgage interest deduction reduced the AMT by $18. Yay.


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## santafe (Sep 10, 2012)

$18, wow. Not sure what to suggest where is the AMT coming from on the 6251, is it due to part III the mamimum capital gains rate?


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## BBCWatcher (Dec 28, 2012)

kontemplerande said:


> Hmm, we report the US investment income in our Swedish return and pay capital gains tax there (30%). We then re-source this income in the US return by filing separate forms 1116 (both regular and AMT, checking "income re-sourced by treaty"). I believe this is correct in our case....


Nope. They got the order backwards. Which is not _terribly_ surprising if they're Swedish accountants who only or primarily work on domestic Swedish tax situations. The U.S. taxes that U.S. source income first, then Sweden gets its chance.

That, right there, could be why the AMT is triggering. The AMT is designed (in part) to "claw back" such mishandled situations.

Go back to your accountants and get them to fix that problem. (A rookie mistake, truth be told. I hope you're not paying them much.) You're underpaying the IRS and overpaying Sweden, and (this year anyway) the AMT is screaming about that.

Think about it this way: would you pay the IRS first on all your Swedish source income, then pay Sweden only the difference? How do you think Sweden's tax authorities would react to that idea?


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## kontemplerande (May 1, 2016)

santafe said:


> $18, wow. Not sure what to suggest where is the AMT coming from on the 6251, is it due to part III the mamimum capital gains rate?


Yes, it's from maximum capital gains rate. I didn't manage to source the AMT to a specific place, there are so many steps to form 6251...



BBCWatcher said:


> Nope. They got the order backwards. Which is not _terribly_ surprising if they're Swedish accountants who only or primarily work on domestic Swedish tax situations. The U.S. taxes that U.S. source income first, then Sweden gets its chance.


Hmm, I guess it could be a mistake. I just called the Swedish IRS and they told me that as far as Sweden is concerned, they are fine either way; paying the tax in the US and the difference in Sweden, or re-sourcing it all to Sweden.

But how would I calculate this in practice? I know what the total tax should be: 30% (Swedish capital gains rate) of the sum of dividends and capital gains, i.e. 0.3 * $15,000 = $4,500. So if I no longer re-source this income to Sweden in my US return, i.e. simply delete the 1116 forms, H&R Block says I have to pay $1,600 in US taxes (and yes, this is now due to regular tax, not AMT). Is it as simple as just report and pay the difference, i.e. $2,900, to Sweden?

It makes sense what you say, but I haven't been able to find any resources or examples online about this. If you happen to know any, feel free to share!

Really appreciate the help btw. The Swedish tax return is due tomorrow, Monday


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## BBCWatcher (Dec 28, 2012)

kontemplerande said:


> But how would I calculate this in practice?


On the U.S. side you don't take any Foreign Tax Credit at all if: (a) all your earned income is excluded by the Foreign Earned Income Exclusion; (b) all the rest of your income is U.S. source. (Hint: You could be better off skipping the FEIE.) More generically you take the FTC only on the non-excluded foreign income, not on your U.S. source income.

On the Swedish side you take no FTCs (their equivalent) except on your U.S. source income.

Cash basis accounting is probably easiest, assuming Sweden allows that. The U.S. does.


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## kontemplerande (May 1, 2016)

BBCWatcher said:


> On the U.S. side you don't take any Foreign Tax Credit at all if: (a) all your earned income is excluded by the Foreign Earned Income Exclusion; (b) all the rest of your income is U.S. source. (Hint: You could be better off skipping the FEIE.) More generically you take the FTC only on the non-excluded foreign income, not on your U.S. source income.
> 
> On the Swedish side you take no FTCs (their equivalent) except on your U.S. source income.
> 
> Cash basis accounting is probably easiest, assuming Sweden allows that. The U.S. does.


Thanks! I've submitted our returns now.

It was a lot easier this way, as opposed to re-sourcing the US income to Sweden. And we did not have to pay the $400 AMT.


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