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AMT Muni Funds Are Worth a Look

Tax law changes could create new opportunities for muni investors.

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American taxpayers experienced the full weight of the Tax Cut and Jobs Act on their tax bills for the first time beginning in April 2019. One of the changes that garnered less attention during last year’s reform debate, yet likely had significant implications for millions this year, was the reform package’s treatment of the Alternative Minimum Tax, or AMT. Under the Internal Revenue Code, the AMT is a separate tax calculation that certain high-income earners are required to make when computing their final tax bill. It includes a unique tax-rate structure and eliminates many deductions and credits permitted by the traditional tax calculation, often creating a larger bill for those who qualify for it.

In recent years, more folks found themselves subject to the AMT; prior to 2018, the Tax Policy Center estimated that more than 5 million taxpayers fell into this group. However, 2018’s tax reforms included, among other things, higher amounts for earned income that would be exempt in the AMT calculation and with that, the number of individual filers subject to the AMT was estimated to drop. Moving forward, it was estimated that 200,000 individual taxpayers would be subject to the AMT, and corporations are no longer exposed to AMT liabilities.

Elizabeth Foos does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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