Basic Mortgage Interest deduction question...

Since you are fully subject to the amt I believe that you will be able to deduct 28% since this number represents the highest amt rate. I had the same concerns. I'm not 100% certain on this though and hope that you are correct.

Yeah, you can earn your way out of AMT, but I don't think $450k does it. I cannot remember what the number is. RT476 sounds right.

So RT476 are you saying the right federal number to use for my calculation is 28% versus 35% or put another way the right amount to use for the deduction calculation is 38%?

When your fully in the AMT you can kiss you state and local tax deduction goodbye as they are actually added back in to the calculation and compared to a non-amt method to determine how much money you get back at the end of yr. Whichever one is less is the one that applies to you. The AMT method usually...As far as federal taxes, I believe you will be taxed at 28%. For example, when I use the mortgage calculator I always put in a 28% federal tax bracket. When I spoke to my accountant the number that I would hypothetically get back was very similar to what the calc showed at 28% fed. If anyone has additional comments please let us know. Later!

I actually think seller's original assumption might be correct. I hope so because I am trying to figure this out for my first mortgage as well!

I looked at this section on Wikipedia: http://en.wikipedia.org/wiki/Alternative_Minimum_Tax#Avoiding_AMT

Specifically the last paragraph:

"For taxpayers who owe AMT, charitable deductions and home mortgage interest (but not "hard money" refinancing interest) are especially valuable. They reduce tax liability by the full TMT effective marginal rate of 32.5% or 35% (for those in the AMT exemption phase-out range)[73] plus the full state income tax marginal rate.[74] This may be quite a bit better than under the regular tax.[75]"

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Can anybody confirm how this works in practice? Still a bit confusing but it seems to imply that you do get 35%+state+local back for mortgage interest paid.

1) This comment about 32.5% or 35% deductibility applies if your income is inside the range of exemption phase-out for AMT, which is a range of 112,500-302,300 if single, 150,000-439,800 if married filing jointly. As you apply mortgage interest, it drops your taxable income, which is taxed at 28%, but also provides a kicker in that you get some of your exemption back, making the effective deduction 32.5% or 35% per dollar of mortgage interest paid.

OP's $450,000 of income places him outside this range but the mortgage interest might place his taxable income inside the range. Depends how much his other income like interest, capital gains augments the 450k. If taxable income post mortgage deduction is above the 439,800 threshold, deductibility is 28%.

2) Under the regular system, the marginal rate for taxable income above $379,150 (married filing jointly) is 35% federal, 7.97% state (btwn 300-500k, another pt >500k), 3.88% city (up 0.23% from 2010). Because you can deduct your state/local taxes at the federal level, the proper calculation is .35 + (.0797+.0388)*(1-.35) = 42.7%.

Now if you believe what Cuomo says and in 2012, the surcharge above 6.85% for state taxes goes away, then it becomes .35 + (.0685+.0388)*(1-.35) = 42.0%.

3) Whether you use #1 or #2 above depends on whether you are in AMT in the first place. There is no way to say- you have to do both calculations and pay the higher of the two. I would bet you are in AMT because your state/city deductions would take your regular system taxes below the AMT floor.