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jklcpa

Sometimes itemizing is better even when standard is higher

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I'm finishing up a joint return for a couple both under 65 and who were about $600 shy of exceeding the standard deduction.  It appeared on the surface that the standard deduction would give the higher refund, however there was a need to "force" itemizing temporarily (or so I thought!) in order to split the data and create a separate file in my program for only the wife to generate her married-separate nonresident DE return, and then I planned to remove the checkbox to again switch back to the (higher) standard deduction.

When I went back to the joint federal return, I found that their refund had increased by over $2,200 because using the slightly lower itemized deduction figure allows them to claim and use up the remaining AMT credit carryover on form 8801.

If the wife didn't benefit by filing that nonresident state return on a separate basis, I may have missed this and the $2,200+ credit would have continued to carry over. 

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4 minutes ago, Abby Normal said:

I have never seen an AMT credit. I was beginning to think they didn't exist. Just rare as unicorns, I suppose.

I know, I was shocked too.  I've only seen one other client use the credit, and that was only very recently, probably caused by the TCJA changes to AMT thresholds.

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When the itemized is close like that, I almost always wind up checking to see what forcing the itemized will do since VA only allows you to itemize for the state if you do for the federal.   Sometimes it is better to pay a little more on the federal to save a whole lot on the state.  But I have not had the situation that you describe show up. 

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Interesting. Thank you for sharing.

When the standard deduction is so close I asked people if they donated to church, children with cancer, world vision, etc.

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I've seen AMT credits in the past.  I've also seen instances where MFS works better.  Odd, sometimes, how tax rules, phase-outs, and limitations interact.

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