taxes

BEST AND WORST STATES TO AVOID THE AMT

Where you live can trigger the AMT.

by: Kiplinger Team

January 1, 2012

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Where you live can trigger the AMT.

Ironically, living in a region with high state taxes -- including income, sales and property tax -- can increase your federal tax bill instead of reducing it. When moderate to wealthy taxpayers try to take these deductions on Form 1040, the amounts can be large enough to trigger the alternative minimum tax, which excludes these deductions.

Based on the most recent IRS data*, the Tax Foundation reports nearly half of all AMT filers, 44.2%, live in the five highest taxed states.

See which states offer best bets for avoiding or triggering the AMT and find out how yours ranks.

* AMT rankings are based on 2005 data. For statistical integrity 2005 data is referenced for all states, with more current data provide through notations.

1 of 10

WORST STATES TO AVOID AMT

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No. 1 -- NEW JERSEY

Percentage of AMT tax returns: 6.83%
(National percentage: 3.01%)
AMT tax liability (all state returns): $277
Added tax liability per AMT return: $4,065
Possible Factors for AMT Ranking
State income tax: 5.525% (median tax bracket)
State sales tax: 6%
Avg. property tax & ranking: No. 1 -- $6,110
Total state & local tax burden: 11.6% (U.S. avg. -- 11%)

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WORST STATES TO AVOID AMT

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No. 2 -- NEW YORK

Percentage of AMT tax returns: 6.00%
(National percentage: 3.01%)
AMT tax liability (all state returns): $322
Added tax liability per AMT return: $5,370
Possible Factors for AMT Ranking
State income tax: 6.85%
State sales tax: 4%
Avg. property tax & ranking: No. 4 -- $4,800
Total state & local tax burden: 13.8% (U.S. avg. -- 11%)

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WORST STATES TO AVOID AMT

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No. 3 -- CONNECTICUT

Percentage of AMT tax returns: 5.90%
(National percentage: 3.01%)
AMT tax liability (all state returns): $245
Added tax liability per AMT return: $4,147
Possible Factors for AMT Ranking
State income tax: 5%
State sales tax: 6%
Avg. property tax & ranking: No. 2 -- $5,405
Total state & local tax burden: 12.2% (U.S. avg. -- 11%)

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WORST STATES TO AVOID AMT

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No. 4 -- WASHINGTON D.C.

Percentage of AMT tax returns: 5.19%
(National percentage: 3.01%)
AMT tax liability (all state returns): $282
Added tax liability per AMT return: $5,439
Possible Factors for AMT Ranking
Income tax rate: 8.7%
State sales tax: 4%
Avg. property tax & ranking: N/A -- $4,575
Total state & local tax burden: 12.5% (U.S. avg. -- 11%)

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WORST STATES TO AVOID AMT

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No. 5 -- MARYLAND

Percentage of AMT tax returns: 5.02%
(National percentage: 3.01%)
AMT tax liability (all state returns): $190
Added tax liability per AMT return: $3,790
Possible Factors for AMT Ranking
State income tax: 4.75%**
State sales tax: 5%
Avg. property tax & ranking: No. 26 -- $2,682
Total state & local tax burden: 10.8% (U.S. avg. -- 11%)

** Figures not based on 2007 tax data. Maryland increased number of tax brackets for 2007 raising income tax up to 5.75%.

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BEST STATES TO AVOID AMT

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No. 1 -- SOUTH DAKOTA

Percentage of AMT tax returns: .87%
(National percentage: 3.01%)
AMT tax liability (all state returns): $30
Added tax liability per AMT return: $3,474
Possible Factors for AMT Ranking
State income tax: None
State sales tax: 4%
Avg. property tax & ranking: No. 32 -- $2,353
Total state & local tax burden: 8.9% (U.S. avg. -- 11%)

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BEST STATES TO AVOID AMT

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No. 2-- MISSISSIPPI

Percentage of AMT tax returns: .94%
(National percentage: 3.01%)
AMT tax liability (all state returns): $32
Added tax liability per AMT return: $3,389
Possible Factors for AMT Ranking**
State income tax: 5%
State sales tax: 7%
Avg. property tax & ranking: No. 41 -- $1,815
State & local tax burden: 10.5% (U.S. avg. -- 11%)

** Hurricane Katrina tax relief is a factor for these 2005 AMT rankings.

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BEST STATES TO AVOID AMT

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No. 3 -- TENNESSEE

Percentage of AMT tax returns: .96%
(National percentage: 3.01%)
AMT tax liability (all state returns): $49
Added tax liability per AMT return: $4,051
Possible Factors for AMT Ranking
State income tax: None**
State sales tax: 4%
Avg. property tax & ranking: No. 42 -- $1,646
Total state & local tax burden: 8.5% (U.S. avg. -- 11%)

**There is a 6% flat tax on dividend and interest income. Avg. income tax collect per person $24.

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BEST STATES TO AVOID AMT

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No. 4 -- ALASKA

Percentage of AMT tax returns: .97%%
(National percentage: 3.01%)
AMT tax liability (all state returns): $31
Added tax liability per AMT return: $3,192
Possible Factors for AMT Ranking
State income tax: None
State sales tax: 0%
Avg. property tax & ranking: No. 11 -- $3,826
Total state & local tax burden: 6.6% (U.S. avg. -- 11%)

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BEST STATES TO AVOID AMT

No. 5 -- ALABAMA

Percentage of AMT tax returns: 1.05%%
(National percentage: 3.01%)
AMT tax liability (all state returns): $42
Added tax liability per AMT return: $4,031
Possible Factors for AMT Ranking
State income tax: 5%
State sales tax: 4%
Avg. property tax & ranking: No. 50 -- $1,002
Total state & local tax burden: 8.8% (U.S. avg. -- 11%)

How does your state rank? AMT Rankings for All States