AMT

Elijah is single. He has a $30,500 AMT credit from 2020. In 2021, his regular tax liability is $76,250 and his tentative minimum tax is $64,813. Does Elijah owe AMT tax in year 2021? 1. Yes/No How much of the AMT credit can Elijah use in 2021? 2. $________

1. No 2. 11,437

Kiki incurred intangible drilling costs (IDC) of $189,600 during the year and deducted that amount for regular tax purposes. Her net oil and gas income for the year was $227,520. Currently, Kiki has no income from geothermal wells. Kiki has calculated her current-year IDC preference to be $18,960. Did Kiki calculate her current-year IDC preference correctly. 1. Yes/No Enter Kiki's preference for IDC: 2. $___________

1. No 2. 22,752

Amee moved to the San Francisco Bay Area to work for a technology startup 25 years ago. The startup eventually went public, and Amee is now one of the company's most senior and successful employees. Amee has owned a house in Nob Hill for the past 20 years. While the house has increased in value significantly during the time she has owned it, her property tax bill also has increased substantially. Given the $10,000 maximum regular tax deduction for state and local taxes and the fact that her property taxes create an AMT adjustment, Amee has decided that she would save a significant amount in AMT if she moved to a state with lower property taxes. Identify the flaw in Amy's logic with respect to the interaction of the $10,000 state and local tax deduction for regular tax purposes and the related AMT adjustment. If a taxpayer's deduction for state and local taxes is limited to $10,000 for regular tax purposes, the AMT adjustment 1. will be eliminated/will be no more than $10,000/is allowed for the full amount of the taxes/will be no more than $10,000. Reduced AMT adjustments 2. Increase/Decrease a taxpayer's likelihood of being in AMT situation. In addition, the TCJA 3. Increased/Decreased regular income tax rates and 4. Increased/Decreased the AMT exemption and phaseout limits.

1. Will be no more than $10,000 2. Decrease 3. Decreased 4. Increased

In the calculation of AMTI, where is the adjustment for the standard deduction made and what is the reason for the adjustment? For AMT purposes, the standard deduction 1. is/is not allowed. Thus, 2. no/a positive/a negative adjustment is made to the 3. regular taxable income starting point of/tentative minimum taxable amount of the AMTI calculation. The reason the standard deduction is 4. allowed/not allowed is that 5. personal and dependency exemptions are/an AMT exemption is allowed. If 6. no adjustment/an adjustment was required for the standard deduction, the taxpayer would receive a double benefit in terms of sheltering a minimum amount of income from taxation, in the calculation of AMTI.

1. is not 2. a positive 3. regular taxable income starting point of 4. not allowed 5. an AMT exemption is 6. no adjustment

Brennen sold a machine used in his business for $258,600. The machine was purchased eight years ago for $465,480. Depreciation up to the date of the sale for regular tax purposes was $297,390 and $267,651 for AMT purposes. What AMT adjustment arises as a result of the sale of the machine? For AMT purposes, Brennen has a 1. negative/positive adjustment of 2. $__________ related to the sale.

1. negative 2. 29,739

If the asset is eligible for full expensing, the AMT basis of the asset will be: 1. greater than/less than/the same as the basis for regular tax purposes because the amount of depreciation for AMT purposes would have been 2. greater than/less than/the same as the depreciation for regular tax purposes. Thus, the gain for AMT purposes would be 3. greater than/less than/the same as the gain for regular tax purposes. 2. If the asset is ineligible for full expensing and the asset is not fully depreciated, the regular tax basis of the asset will be 4.greater than/less than/the same as the basis for AMT purposes because the amount of depreciation for AMT purposes would have been 5. greater than/less than/the same as the depreciation for regular tax purposes. Thus, the gain for regular tax purposes would be 6. greater than/less than/the same as the gain for AMT purposes.

1. the same as 2. the same as 3. the same as 4. less than 5. less than 6. greater than

Betty is age 34 and has AGI of $50,000. The following items may qualify as itemized deductions for Betty: Qualified medical expenses (before 7.5% AGI floor) $6,000 Real estate tax $1,200 State income tax $800 Charitable contributions $600 Mortgage interest on acquisition indebtedness $2,000 Home equity interest on a loan used to improve the home $300 What is the itemized deduction add-back for the AMT? a. $2,000 b. $2,800 c. $3,800 d. $8,800

A

How is the alternative minimum tax credit applied in the calculation of the tentative minimum tax (TMT)? a. It is carried forward indefinitely and applied to regular tax only. b. It is carried back five years and applied to regular tax only. c. It is carried forward indefinitely and can be applied to regular tax or AMT. d. It is carried forward five years and applied to regular tax only.

A

Which of the following statements is most correct? a. Tax preference items for the alternative minimum tax are always added back to regular taxable income. b. Itemized deductions that are added back to regular taxable income for the alternative minimum tax are preference items. c. Tax preference items for the alternative minimum tax can be an increase or decrease to regular taxable income. d. All taxpayers are able to deduct the full exemption in the calculation of the alternative minimum tax.

A

Anthony entered into a long-term construction contract in year 3. The total profit of the contract is $80,000 and does not change over the life of the contract. The contract will be completed in year 5. The contract is 20% and 70% complete at the end of years 3 and 4, respectively. What is the alternative minimum tax adjustment required in year 4? a. $16,000 b. $40,000 c. $56,000 d. $80,000

B

Carol reports taxable income of $48,000. Included in that calculation are the following items. Real estate taxes on her home $2000 Mortgage interest on acquisition indebtedness $1200 Charitable contribution $550 Carol also had excluded municipal bond interest income of $8,000, $3,000 of which was deemed to be private activity bond interest. What are Carol's total alternative minimum tax (AMT) adjustments? a. $1,200 b. $2,000 c. $3,000 d. $6,750

B

AMT exclusions include all of the following, except: a. The standard deduction. b. Excess percentage depletion. c. Charitable deductions. d. Tax-exempt interest on private activity bonds. e. Itemized deductions not allowable for AMT purposes.

C

Betty is age 34 and has AGI of $50,000 and regular taxable income of $35,000. The following items may qualify as itemized deductions for Betty: Qualified medical expenses (before % AGI floor) $3,000 Real estate tax $1,200 State income tax $800 Charitable contributions $600 Mortgage interest on acquisition indebtedness $2,000 Home equity interest on a loan used to improve the home $300 What is the alternative minimum taxable income (AMTI)? a. $35,000 b. $37,500 c. $37,000 d. $52,800

C

Which of the following would not be classified as an AMT adjustment? a. Circulation expenditures b. The Lifetime Learning Credit c. Private activity bonds d. Incentive stock options (ISOs) e. Research and experimental expenditures

C

Rosie, who is single, had taxable income of $0 in 2021. She has positive timing adjustments of $705,000 and exclusion items of $100,000 for the year. What is the amount of her alternative minimum tax credit for carryover to 2022? a. $221,402 b. $6,864 c. $214,538 d. $0 e. $228,862

C (AMT computation: $0 taxable income + $705,000 adjustments + $100,000 exclusion items = $805,000 AMTI - $0 AMT exemption = $805,000 AMT base. $51,974 ($199,900 × 0.26 AMT rate) + $169,428 [($805,000 - $199,900) × 0.28 AMT rate] = $221,402 tentative AMT - $0 regular income tax = $221,402 AMT. AMT without timing adjustments: $0 taxable income + $100,000 exclusion items = $100,000 AMTI - $73,600 AMT exemption = $26,400 AMT base × 0.26 AMT rate = $6,864 tentative AMT - $0 regular income tax = $6,864 AMT. $221,402 AMT - $6,864 AMT without timing adjustments = $214,538 AMT credit.)

Ray, who is single, has zero taxable income for 2021. He also has AMT exclusions of $300,000. Ray's tentative minimum tax (TMT) is: a. $38,948. b. $0. c. $59,394. d. $277,199. e. $72,358.

C (Ray's AMT base is $226,400 ($300,000 AMTI considering only exclusions - $73,600 exemption), and his TMT is $59,394 [($199,900 × 26%) + ($26,500 × 28%)].)

Can any nonrefundable credits, other than the foreign tax credit, reduce the regular tax liability below the amount of the TMT? a. No, only the foreign tax credit b. Yes, only the elective for elective deferals c. Yes, only the child care personal nonrefundable credit d. Yes, all personal nonrefundable credits

D

A key feature of AMT adjustments that arise from timing differences is that they: a. Are permanent. b. Are always positive. c. Apply only to the wealthiest 1% of taxpayers. d. Occur only when there has been a mistake in tax preparation. e. Must eventually reverse.

E

Cheryl, who is single, records AMTI of $680,000 for the year. Cheryl's AMT exemption is: a.$0. b.$71,700. c.$42,425. d.$50,000. e.$34,500.

E

The AMT adjustment for income on long-term contracts can be avoided by using the completed contract method. T/F?

False

Vera had a percentage depletion of $119,000 for the current year for regular income tax purposes. Cost depletion was $60,000. Her basis in the property was $90,000 at the beginning of the current year. Vera must treat the percentage depletion deducted in excess of cost depletion, or $59,000, as a tax preference in computing AMTI. T/F?

False

Tristen incurs circulation expenditures of $120,000 in year 1. No additional circulation expenditures are incurred in years 2 or 3. The cumulative adjustment for circulation expenditures for year 1, 2, and 3 is $120,000. T/F?

False (Tristen has a positive AMT adjustment of $80,000 ($120,000 - $40,000) in year 1 and negative AMT adjustments of $40,000 in years 2 and 3. Thus, the cumulative result is $0 ($80,000 - $40,000 - $40,000).)

A taxpayer who expects to be subject to the AMT can realize a tax benefit by contributing to a qualified retirement savings plan that would decrease AGI. T/F?

True

AMT preferences always are positive T/F?

True

Assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately for 2021 is less than the AMT exemption amount for head of household. T/F?

True

If the tentative AMT is greater than the regular tax, then the taxpayer also must pay the AMT. T/F?

True

Interest income on private activity bonds issued before 2008, offset by expenses incurred in carrying the bonds, is a tax preference item that is included in computing AMTI. T/F?

True

Preferences are added to taxable income to determine the alternative minimum taxable income (AMTI). T/F?

True

The AMT applies to corporations, individuals, trusts, and estates. T/F?

True

The AMT is a backup to the regular income tax. T/F?

True

In 2021, Reya exercised an incentive stock option that had been granted to her in 2018 by her employer, Weather Corporation. Reya acquired 100 shares of Weather stock for the option price of $190 per share. The rights in the stock become freely transferable and not subject to a substantial risk of forfeiture in 2021. The fair market value of the stock at the date of exercise was $250 per share. Reya sells the stock for $340 per share in 2023. a. What is the amount of Reya's AMT adjustment in 2021? What is her recognized gain on the sale for regular tax and for AMT purposes in 2023? In 2021, Reya has a 1. positive/negative AMT adjustment of 2. $_________. Her recognized gain on the sale for regular income tax is 3. $________ and 4. $__________ for AMT purposes. As a result, Reya has a 5. positive/negative AMT adjustment of 6. $_________ in 2023. b. How would your answers in (a) change if Reya had sold the stock in 2021 rather than 2023? Reya would have a 1. $________ AMT adjustment is required in 2021. For regular tax purposes, Liza would recognize 2. $_________ of ordinary/compensation income and a 3. $_________.

a. 1. positive 2. $6,000 3. $15,000 4. $9,000 5. negative 6. $6,000 b. 1. 0 2. $6,000 3. $9,000

In the current year, Dylan earned interest from the following investments. Dylan purchased all of the bonds on their issuance date. In addition, Dylan borrowed funds with which to purchase the 2010 private activity bond and incurred interest expense of $350 on that loan in the current year. a. How much interest income will Dylan recognize for regular tax purposes in the current year? $___________ b. What is her current year AMT preference or adjustment for interest? $__________ AMT adjustment/AMT preference

a. $3,100 b. $900 AMT Preference

Yanni, who is single, provides you with the following information for 2021: Salary: $112,000 State income taxes: $11,200 Mortgage interest expense on principal residence: $10,080 Charitable contributions: $2,240 Interest income: $1,680 Compute the following: a. Yanni's taxable income: $_________ b. Yanni's AMT base: $_________ c. Yanni's tentative minimum tax: $_________

a. 91,360 b. 27,760 c. 7,218

Kelly was promoted and received a substantial raise that includes compensation in the form of incentive stock options. She talks to her tax adviser about potential tax ramifications. After making some projections, her adviser welcomes her to the alternative minimum tax (AMT) club. Kelly is surprised to learn that her promotion will be rewarded with an additional tax in the form of the AMT. Indicate whether the following statements are "True" or "False" regarding the purpose of the AMT and why it applies to her. a. Congress became concerned about the inequity that results when taxpayers with substantial economic income can avoid paying any income tax. b. The AMT is separate from, but parallel to, the regular income tax system. c. Kelly has AMT adjustments, tax preferences, or both. d. Congress wanted some taxpayers to be able to take advantage of tax incentives and minimize their Federal income tax liability.

a. True b. True c. True d. False

Paola exercised an incentive stock option on March 1, 2021. She acquired 2,000 shares of stock at an exercise price of $3 per share when the fair market value of the stock was $15 per share. However, Paola was concerned that the stock was overvalued, so she sold all of the stock acquired with the option on December 21, 2021, for $17 per share. a. Will Paola incur an AMT adjustment in 2021 as a result of the exercise of the option or the sale of the shares. She will have a positive adjustment/have a negative adjustment/not have an AMT adjustment. b. Paola will recognize 1. $____________ as compensation income and 2. $_________ as short-term capital gain.

a. not have an AMT Adjustment b. (1). 24,000 (2). 4,000