Selling rental before retiring and AMT concerns

[Crimson Headache]

My wife and I are in Colorado and plan to retire within 2-3 yrs. We sold a rental property in ‘24 with about $280k in gains, which we expected to be taxed at long term rates. Tax software now has us brushing up against AMT and it’s throwing off my early retirement withdrawal planning. Has anyone worked through a similar situation and determined how much AMT really affects the retirement math?

 

[FrugalLyf]

The AMT effectively raises the tax rate on your $280k gain.
It's expensive but it's a one-time tax event for 2024.
To properly do your retirement math, you must get the final, total tax bill from your CPA and deduct that entire amount from your sale proceeds. That will be your real investable capital.
The silver lining is that your portfolio is now cleaner, more liquid, and your tax planning for 2025 and all of retirement should be much more predictable.
Re-run your plan with that adjusted capital number.

 

[Aviat10n]

My wife and I are in Colorado and plan to retire within 2-3 yrs. We sold a rental property in ‘24 with about $280k in gains, which we expected to be taxed at long term rates. Tax software now has us brushing up against AMT and it’s throwing off my early retirement withdrawal planning. Has anyone worked through a similar situation and determined how much AMT really affects the retirement math?

Don't let the immediate AMT fear derail the long term retirement plan, but definitely adjust your withdrawal schedule. The AMT often means your effective tax rate on that gain is higher than you calculated.
When planning your first few retirement years, factor in that the cost basis of your investments is now slightly higher, and your overall tax bucket has been somewhat filled by the AMT hit.
The main danger is if you planned on using those first low income retirement years to do a large Roth conversion, the AMT complication can limit how much tax free space you have left

 

[Crimson Headache]

Since I’m about 2–3 years out, I’ll need to adjust my withdrawal and conversion plan now rather than later. Has anyone here run actual Roth conversion scenarios under AMT to see how much room is left before it pushes the rate higher?