I will be selling some land that I own and am having trouble understanding the tax that will be due. I entered the figures into 2020 tax software but the amount due does not match my understanding of tax computation. If someone could explain the calculations to me, I would greatly appreciate it.
I file as single, standard deduction, with earnings of $130,000. The tax on my earnings without the property sale is $22,304.
The land more than 10 years ago (long term) at a price of $150k and is selling for $800k. When the land sale is included, the federal tax is $167,698.
Looking at the tax return, NIIT is 22,040 which is clear. 3.8% * 580k where 580k is 650k profit + 130k base earnings minus 200k allowance for single
The tax return computes the rest of the taxes owed based on AMT form 6251. My understanding is that AMT is meant to prevent tax evasion from excessive write offs. I do not understand why AMT applies in this situation since just the standard deduction is taken.
Part II of form 6251 computes $9546 AMT owed. Section III computes a value of $145,658 which matches the value on line 18 of 1040 (tax owed including AMT but not including NIIT). Subtracting AMT and tax on base earnings (145,658 - 9546 - 22304) gives a value of 113808 which should be the capital gains tax. I can not figure how this value is obtained.
Assuming 15% on first 441,450 and 20% the rest of the 650k gives a value of $107,927.50 which is ~5880 too low.
.15* 441450 = 66217.5
.2 * 208550 = 41710
66217.50 + 41710 = 107927.50
Assuming entire sale taxed at 20% gives 130k which is too high.
Can someone explain the capital gains tax in this example as well as why AMT tax applies in this situation? I can go thru the forms and see that the math works according to the steps provided on the forms but the final outcome does not match the expected capital gains tax. I am including screen shots of the forms.
Base earnings without land sale
1040 with land sale added:
NIIT :
AMT:
