Deck 15: Alternative Minimum Tax

Question 1

The required adjustment for AMT purposes for pollution control facilities placed in service in 2015 is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.

Answer 1

False

Question 2

The AMT calculated using the indirect method will produce a different amount than the AMT calculated using the direct method.

Answer 2

False

Question 3

In deciding to enact the alternative minimum tax,Congress was concerned about the inequity that resulted when taxpayers with substantial economic incomes could avoid paying regular income tax.

Answer 3

True

Question 4

Business tax credits reduce the AMT and the regular income tax in the same way.

Question 5

Prior to the effect of tax credits,Clarence's regular income tax liability is $200,000 and his tentative AMT is $180,000.Clarence has nonrefundable business tax credits of $35,000.His tax liability is $165,000.

Question 6

Since most tax preferences are merely timing differences,they eventually will reverse and net to zero.

Question 7

Assuming no phaseout,the AMT exemption amount for a married taxpayer filing separately for 2015 is more than the AMT exemption amount for C corporations.

Question 8

After personal property is fully depreciated for both regular income tax purposes and AMT purposes,the positive and negative adjustments that have been made for AMT purposes will net to zero.

Question 9

Paul incurred circulation expenditures of $180,000 in 2015 and deducted that amount for regular income tax purposes.Paul has a $60,000 negative AMT adjustment for 2016,2017,and for 2018.

Question 10

Keosha acquires 10-year personal property to use in her business in 2015 and takes the maximum cost recovery deduction for regular income tax purposes.As a result of this,Keosha will have a positive AMT adjustment in 2015.

Question 11

If Abby's alternative minimum taxable income exceeds her regular taxable income,she will have an alternative minimum tax.

Question 12

If the AMT base is greater than $185,400,the AMT rate for an individual taxpayer is the same as the AMT rate for a C corporation.

Question 13

The net capital gain included in an individual taxpayer's AMT base is eligible for the beneficial alternative tax rate on net capital gain.This favorable alternative rate applies both in calculating the regular income tax and the AMT.

Question 14

Unless circulation expenditures are amortized over a three-year period for regular income tax purposes,there will be an AMT adjustment.

Question 15

Joel placed real property in service in 2015 that cost $900,000 and used MACRS depreciation for regular income tax purposes.He is required to make a positive adjustment for AMT purposes in 2015 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Question 16

Negative AMT adjustments for the current year caused by timing differences are offset by the positive AMT adjustments in prior tax years also caused by timing differences.

Question 17

A taxpayer who expenses circulation expenditures in the year incurred for regular income tax purposes will have a positive AMT adjustment in the following year.

Question 18

AMT adjustments can be positive or negative,whereas AMT preferences are always positive.

Question 19

Madge's tentative minimum tax TMT is $112,000.Her regular income tax liability is $99,000.Madge's AMT is $13,000.

Question 20

The phaseout of the AMT exemption amount for a taxpayer filing as a head of household both begins and ends at a higher income level than it does for a single taxpayer.

Question 21

The sale of business property might result in an AMT adjustment.

Question 22

The recognized gain for regular income tax purposes and the recognized gain for AMT purposes on the sale of stock acquired under an incentive stock option (ISO) program are always the same because the adjusted basis is the same.

Question 23

Elmer exercises an incentive stock option (ISO) in 2015 for $6,000 (fair market value of the stock on the exercise date is $7,600).If Elmer sells the stock later in 2015 for $8,000,the AMT positive adjustment is $1,600 and the AMT negative adjustment is $2,000.

Question 24

The AMT adjustment for mining exploration and development costs can be avoided if the taxpayer elects to write off the expenditures in the year incurred for regular income tax purposes,rather than writing off the expenditures over a 10-year period for regular income tax purposes.

Question 25

Cher sold undeveloped land that originally cost $150,000 for $225,000.There is a positive AMT adjustment of $75,000 associated with the sale of the land.

Question 26

The amount of the deduction for medical expenses under the regular income tax may be different than for AMT purposes if the taxpayer is at least age 65.

Question 27

Nell has a personal casualty loss deduction of $14,500 for regular income tax purposes.The deduction would have been $26,600,but it had to be reduced by $100 and by $12,000 (10% × $120,000 AGI).For AMT purposes,the casualty loss deduction also is $14,500.

Question 28

Benita expensed mining exploration and development costs of $500,000 incurred in the current tax year.She will be required to make negative AMT adjustments for each of the next ten years and a positive AMT adjustment in the current tax year.

Question 29

Kerri,who had AGI of $120,000,itemized her deductions in the current year.She incurred unreimbursed employee business expenses of $8,500.Kerri must make a positive AMT adjustment of $2,400 in computing AMT.

Question 30

In the current tax year,Ben exercised an incentive stock option (ISO),acquiring stock with a fair market value of $190,000 for $170,000.His AMT basis for the stock is $170,000,his regular income tax basis for the stock is $170,000,and his AMT adjustment is $0 ($170,000 - $170,000).

Question 31

The deduction for personal and dependency exemptions is allowed for regular income tax purposes,but is disallowed for AMT purposes.This results in a positive AMT adjustment.

Question 32

If a gambling loss itemized deduction is permitted for regular income tax purposes,there will be no AMT adjustment associated with the gambling loss.

Question 33

Evan is a contractor who constructs both commercial and residential buildings.Even though some of the contracts could qualify for the use of the completed contract method,Evan decides to use the percentage of the completion method for all of his contracts.Unfortunately,this will have the effect of increasing Evan's AMT adjustment associated with long-term contracts for the current year.

Question 34

The deduction for charitable contributions in calculating the regular income tax can differ from that in calculating the AMT because the percentage limitations (20%,30%,and 50%) may be applied to a different base amount.

Question 35

Because passive losses are not deductible in computing either taxable income or AMTI,no adjustment for passive losses is required for AMT purposes.

Question 36

If the regular income tax deduction for medical expenses is $0,under certain circumstances the AMT deduction for medical expenses can be greater than $0.

Question 37

Interest on a home equity loan cannot be deducted for AMT purposes.

Question 38

Income from some long-term contracts can be reported using the completed contract method for regular income tax purposes,but the percentage of completion method is required for AMT purposes for all long-term contracts.

Question 39

The AMT adjustment for research and experimental expenditures can be avoided if the taxpayer capitalizes the expenditures and amortizes them over a 10-year period for regular tax purposes.

Question 40

AGI is used as the base for application of percentage limitations (i.e. ,20%,30%,50%) that apply to the charitable contribution deduction for regular income tax purposes.Modified AGI is used as the base for application of percentage limitations that apply to the charitable contribution deduction for AMT purposes.

Question 41

For individual taxpayers,the AMT credit is applicable for the AMT that results from timing differences,but it is not available for the AMT that results from the adjustment for itemized deductions or exclusion preferences.

Question 42

Prior to the effect of the tax credits,Justin's regular income tax liability is $200,000 and his tentative minimum tax is $195,000.Justin reports the following credits. Child tax credit $1,000 Adoption expenses credit 5,000 ​ Calculate Justin's tax liability after credits.

A)$190,000
B)$194,000
C)$195,000
D)$200,000
E)None of the above

Question 43

Which of the following statements is correct?

A)If the tentative minimum tax is $10,000 and the regular income tax liability is $12,000,the AMT is $2,000.
B)If the tentative minimum tax is $12,000 and the regular income tax liability is $10,000,the AMT is $12,000.
C)If the tentative minimum tax is $10,000 and the regular income tax liability is $12,000,the AMT is a negative $2,000.
D)If the tentative minimum tax is $12,000,and the regular income tax liability is $10,000,the AMT is $2,000.
E)None of the above.

Question 44

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

Question 45

The corporate AMT no longer applies.

Question 46

All of a C corporation's AMT is available for carryover as a minimum tax credit regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.

Question 47

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

Question 48

Vicki owns and operates a news agency (as a sole proprietorship).During 2015,she incurred expenses of $24,000 to increase circulation of newspapers and magazines that her agency distributes.For regular income tax purposes,she elected to expense the $24,000 in 2015.In addition,Vicki incurred $15,000 in circulation expenditures in 2016 and again elected expense treatment.What AMT adjustments will be required in 2015 and 2016 as a result of the circulation expenditures?

A)$16,000 positive in 2015,$2,000 positive in 2016.
B)$16,000 negative in 2015,$2,000 positive in 2016.
C)$16,000 negative in 2015,$10,000 positive in 2016.
D)$16,000 positive in 2015,$10,000 positive in 2016.
E)None of the above.

Question 49

Ashley can reduce her regular income tax liability from $47,000 to $43,500 as the result of the alternative tax on net capital gain.Ashley's tentative minimum tax is $51,000.

A)Ashley's tax liability is reduced by $3,500 as the result of the alternative tax calculation on net capital gain.
B)Ashley's AMT is increased by $3,500 as the result of the alternative tax calculation on net capital gain.
C)Ashley's tax liability is $43,500.
D)Ashley's tax liability is $47,000.
E)None of the above.

Question 50

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000) in 2014.In calculating gross income for regular income tax purposes,he excludes all of his realized gain of $20,000.The $20,000 exclusion is a tax preference in calculating Jackson's AMTI.

Question 51

Kay had 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.Kay must treat the percentage depletion deducted in excess of cost depletion,or $59,000,as a tax preference in computing AMTI.

Question 52

The AMT exemption for a C corporation is $50,000 reduced by 25% of the amount by which AMTI exceeds $150,000.

Question 53

Interest income on private activity bonds issued before 2009 and after 2010,reduced by expenses incurred in carrying the bonds,is a tax preference item that is included in computing AMTI.

Question 54

Beula,who is a head of household and age 40,provides you with the following information from her financial records for 2015. ​ Regular income tax liability $ 35,776 AMT positive adjustments 33,000 AMT preferences 25,000 Taxable income 170,000 ​ Calculate her AMTI for 2015.

A)$0
B)$171,300
C)$201,600
D)$228,000
E)None of the above

Question 55

Ashby,who is single and age 30,provides you with the following information from his financial records for 2015. Regular income tax liability $ 47,228 AMT positive adjustments 40,000 AMT preferences 20,000 Taxable income 195,000 ​ Calculate his AMT exemption for 2015.

A)$0
B)$17,000
C)$26,800
D)$53,600
E)None of the above

Question 56

For regular income tax purposes,Yolanda,who is single,is in the 35% tax bracket.Her AMT base is $220,000.Her tentative AMT is:

A)$57,200.
B)$57,892.
C)$61,600.
D)$77,000.
E)None of the above.

Question 57

Dale owns and operates Dale's Emporium as a sole proprietorship.On January 30,1998,Dale's Emporium acquired a warehouse for $100,000.For regular income tax purposes in 2015,depreciation was deducted under MACRS using a rate of 2.564%.Determine the AMT adjustment for depreciation and indicate whether it is positive or negative.

A)$64 negative adjustment.
B)$64 positive adjustment.
C)No adjustment is required because Dale's Emporium used the Alternative Depreciation System (ADS) to compute depreciation on the property for AMT purposes.
D)No adjustment is required because Dale's Emporium used MACRS to compute the depreciation of the property for regular income tax purposes.
E)None of the above.

Question 58

If the taxpayer elects to capitalize intangible drilling costs and to amortize them over a 3-year period for regular income tax purposes,there is no adjustment or preference for AMT purposes.

Question 59

Prior to the effect of tax credits,Eunice's regular income tax liability is $325,000 and her tentative minimum tax is $312,000.Eunice has general business credits available of $20,000.Calculate Eunice's tax liability after tax credits.

A)$0
B)$305,000
C)$312,000
D)$325,000
E)None of the above

Question 60

C corporations are subject to a positive AMT adjustment equal to 75% of the excess of ACE over AMTI before the ACE adjustment.

Question 61

Mauve,Inc. ,has the following for 2013,2014,and 2015 and no prior ACE adjustments. 2013 2014 2015 Pre-adjusted AMTI $12,000 $15,000 $8,000 Adjusted current earnings 10,000 17,000 5,000 ​ What is the ACE adjustment for each of the three years? ​ 2013 2014 2015

A)$0 $1,500 ($1,500)
B)($2,000) $2,000 ($3,000)
C)$2,000 ($2,000) $3,000
D)($1,500) $1,500 $2,250
E)$1,500 ($1,500) ($2,250)

Question 62

Use the following data to calculate Jolene's AMTI. Taxable income $190,000 AMT adjustments Positive 70,000 Negative (14,000) Tax preferences 25,000

Question 63

Arlene,who is single,has taxable income for 2015 of $112,000.Calculate her alternative minimum tax,if any,given the following additional information. ​ AMT adjustments Positive $22,000 Negative (25,000) Tax preferences 46,000

Question 64

Eula owns a mineral property that had a basis of $23,000 at the beginning of the year.Cost depletion is $19,000.The property qualifies for a 15% depletion rate.Gross income from the property was $200,000 and net income before the percentage depletion deduction was $50,000.What is Eula's tax preference for excess depletion?

A)$15,000
B)$23,000
C)$25,000
D)$0
E)None of the above

Question 65

Use the following selected data to calculate Devon's taxable income. Tax preferences $ 45,000 Positive AMT adjustments 52,000 Negative AMT adjustments 15,000 AMTI 290,000

Question 66

Omar acquires used 7-year personal property for $100,000 to use in his business in February 2015.Omar does not elect § 179 expensing,but does take the maximum regular cost recovery deduction.He elects not to take additional first-year depreciation.As a result,Omar will have a positive AMT adjustment in 2015 of what amount?

A)$0
B)$3,580
C)$10,710
D)$14,290
E)None of the above

Question 67

Marvin,the vice president of Lavender,Inc. ,exercises stock options for 100 shares of stock in March 2014.The stock options are incentive stock options (ISOs).Their exercise price is $20 and the fair market value on the date of exercise is $28.The options were granted in March 2010 and all restrictions on the free transferability had lapsed by the exercise date.

A)If Marvin sells the stock in December 2015 for $3,000,his AMT adjustment in 2015 is a positive adjustment of $800.
B)If Marvin sells the stock in December 2016 for $3,000,his AMT adjustment in 2016 is $0.
C)If Marvin sells the stock in December 2015 for $3,000,his AMT adjustment in 2015 is a negative adjustment of $800.
D)If Marvin sells the stock in December 2016 for $3,000,his AMT adjustment in 2016 is a negative adjustment of $1,000.
E)None of the above.

Question 68

Ted,who is single,owns a personal residence in the city.He also owns a condo near the ocean.He uses the condo as a vacation home.In March 2015,he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile.During 2015,he paid the following amounts of interest. ​ ∙ on his personal residence $15,500 ∙ on the condo 6,200 ∙ on the home equity loan 4,800 ∙ on credit card obligations 1,700 What amount,if any,must Ted recognize as an AMT adjustment in 2015?

A)$0
B)$4,800
C)$6,200
D)$11,000
E)None of the above

Question 69

Bianca and David have the following for 2015. Regular income tax before credits $32,000 Tentative minimum tax before credits 45,000 ​
a.Calculate Bianca and David's AMT if they qualify for the adoption expense credit of $11,000.
b.Calculate Bianca and David's AMT if they qualify for the adoption expense credit of $13,190.

Question 70

Celia and Christian,who are married filing jointly,have one dependent and do not itemize deductions.They have taxable income of $92,000 and tax preferences of $53,000 in 2015.What is their AMT base for 2015?

A)$0
B)$86,200
C)$88,875
D)$169,600
E)None of the above

Question 71

Akeem,who does not itemize,incurred a net operating loss (NOL) of $50,000 in 2014.His deductions in 2014 included AMT tax preference items of $20,000,and he had no AMT adjustments.Assuming the NOL is not carried back,what is Akeem's ATNOLD carryover to 2015?

A)$50,000
B)$30,000
C)$20,000
D)$40,000
E)None of the above

Question 72

Gunter,who is divorced,has the following items for 2015. Salary $60,000 Gain on sale of land held nine months (regular income tax basis is $4,000 less than AMT basis) 10,000 Traditional IRA contribution 5,000 Alimony paid 9,000 Itemized deductions: Charitable contributions $3,000 Home mortgage interest on his principal residence 4,000 State income taxes 2,000 9,000 Tax preferences 15,000 ​ Calculate Gunter's AMTI for 2015.

Question 73

Mitch,who is single and age 66 and has no dependents,had AGI of $100,000 in 2015.His potential itemized deductions were as follows: ​ Medical expenses (before percentage limitation) $15,000 State income taxes 3,000 Real estate taxes 7,000 Mortgage (qualified housing and residence) interest 9,000 Cash contributions to various charities 4,000 Unreimbursed employee expenses (before percentage limitation) 4,300 ​ What is the amount of Mitch's AMT adjustment for itemized deductions for 2015?

A)$14,800
B)$16,800
C)$19,300
D)$25,800
E)None of the above

Question 74

In 2015,Glenn had a $108,000 loss on a passive activity.None of the loss is attributable to AMT adjustments or preferences.She has no other passive activities.Which of the following statements is correct?

A)In 2015,Glenn can deduct $108,000 for regular income tax purposes and for AMT purposes.
B)Glenn will have a $108,000 tax preference in 2015 as a result of the passive activity.
C)For regular income tax purposes,none of the loss is allowed in 2015.
D)In 2015,Glenn will have a positive adjustment of $25,000 as a result of the passive loss.
E)None of the above.

Question 75

Vinny's AGI is $250,000.He contributed $200,000 in cash to the Boy Scouts,a public charity.What is Vinny's charitable contribution deduction for AMT purposes?

A)$0
B)$50,000
C)$75,000
D)$125,000
E)None of the above

Question 76

Wallace owns a construction company that builds both commercial and residential buildings.He contracts to build a residential building for $800,000 for which he is eligible to use the completed contract method of accounting.In the current year for regular income tax purposes,Wallace does not recognize any income on the contract.Under the percentage of completion method,the income recognized under the contract would have been $60,000.Wallace's AMT adjustment is:

A)$0.
B)$60,000 negative adjustment.
C)$60,000 positive adjustment.
D)$800,000 positive adjustment.
E)None of the above.

Question 77

Tad and Audria,who are married filing a joint return,have AMTI of $256,000 for 2015.Calculate their AMT exemption.

Question 78

Caroline and Clint are married,have no dependents,and file a joint return in 2015.Use the following selected data to calculate their Federal income tax liability. ​ AMTI $285,000 Regular income tax liability 42,066 AMT tax preferences 90,000

Question 79

Robin,who is a head of household and age 42,provides you with the following information from his financial records for 2015.Robert itemizes deductions. Regular income tax liability $ 42,539 AMT positive adjustments 30,000 AMT preferences 20,000 Taxable income 181,000 ​ Calculate his AMT for 2015.

A)$12,651.
B)$17,825.
C)$42,539.
D)$55,190.
E)None of the above.

Question 80

Sand Corporation,a calendar year taxpayer,has alternative minimum taxable income [before adjustment for adjusted current earnings (ACE)] of $900,000 for 2015.If Sand's (ACE) is $975,000,its tentative minimum tax for 2015 is:

A)$0.
B)$56,250.
C)$180,000.
D)$191,250.
E)None of the above.