Before you read further, remember this: consult with your CPA regarding your personal situation as it may relate to AMT.  In the meantime, what is the Alternative Minimum Tax and what does it have to do with investing in South Carolina tax-free bonds?  The origin of AMT goes back a few decades when an alternative tax was implemented to offset high-income individuals taking excessive deductions and hence, paying little or no tax to the Internal Revenue System.  Tax code is, of course, very complex, and way beyond the scope of this article.  But I will touch on three important points for you to remember:

1.  AMT can be triggered by a combination of high deductions, passive income, the exercise of stock options, income from private activity municipal bonds, and a number of other factors.

2.  These days, even average income taxpayers with modest deductions may trigger AMT.

3.  The code around AMT is complex and subject to frequent revision by the IRS, so as I mentioned at the top, consult with your tax professional.

When investing in tax free municipal bonds in South Carolina (or other states), be sure to understand if an issue pays interest that may be subject to AMT.  The tax-exempt status of municipal bonds is based on how the proceeds of the debt issuance are used, and if there is any level of private activity, the interest may be deemed taxable or subject to AMT.  As always, please drop me a note if you have any questions.

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