Question 1

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.

Accepted Answer

This statement is true. The completed contract method is an acceptable method of accounting for long-term contracts for regular income tax purposes, but the percentage of completion method is required for AMT (Alternative Minimum Tax) purposes. This is because the AMT system aims to eliminate certain tax benefits and encourages the use of more conservative accounting methods to reduce the potential for tax shelters.

Question 2

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.

Accepted Answer

The answer of Benita expensed mining exploration and development costs...

Question 3

If a gambling loss itemized deduction is permitted for regular income tax purposes, no AMT adjustment results.

Accepted Answer

The answer of If a gambling loss itemized deduction is...

Question 4

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.

Accepted Answer

The answer of AGI is used as the base for...

Question 5

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.

Accepted Answer

This statement is true. By capitalizing the expenditures and amortizing them over a 10-year period for regular tax purposes, the taxpayer can avoid the AMT adjustment for research and experimental expenditures.

Question 6

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.

Accepted Answer

The answer of Cher sold undeveloped land that originally cost...

Question 7

Elmer exercises an incentive stock option (ISO) in March for $6,000 (fair market value of the stock on the exercise date is $7,600). If Elmer sells the stock in November of the same tax year for $8,000, he reports a $1,600 AMT adjustment for the year.

Accepted Answer

The AMT adjustment would be $1,600 if Elmer were holding onto the stock, but since he sells the stock in the same tax year as he exercised the option, the entire gain from the exercise price to the sale price ($8,000 - $6,000 = $2,000) is reported as ordinary income, not as an AMT adjustment.

Question 8

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

Accepted Answer

The recognized gain for regular income tax purposes and the recognized gain for AMT purposes can be different because the AMT calculation uses the fair market value of the stock on the exercise date as the basis instead of the adjusted basis.

Question 9

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.

Accepted Answer

The answer of If the regular income tax deduction for...

Question 10

The AMT adjustment for mining exploration and development costs can be avoided if the taxpayer elects to deduct 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.

Accepted Answer

The answer of The AMT adjustment for mining exploration and...

Question 11

Nell records a personal casualty loss deduction of $14,500 for regular income tax purposes. The loss was computed as $26,600, but it was reduced by $100 and by $12,000 (10% × $120,000 AGI). For AMT purposes, the casualty loss deduction also is $14,500.

Accepted Answer

For both regular tax and AMT purposes, the casualty loss deduction is calculated the same way, so the deduction remains $14,500 for AMT.

Question 12

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. As a result, 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).

Accepted Answer

When Ben exercises an incentive stock option (ISO) and acquires stock, for AMT purposes, the basis of the stock is the price he paid ($170,000), but the AMT adjustment is the difference between the fair market value of the stock when exercised ($190,000) and the price he paid ($170,000), which is $20,000, not $0. His regular income tax basis for the stock is indeed $170,000, but the AMT adjustment should be $20,000.

Question 13

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

Accepted Answer

The answer of Interest on a home equity loan cannot...

Question 14

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.

Accepted Answer

The statement is true. The deduction for personal and dependency exemptions is disallowed for AMT purposes, which means it is added back as a positive adjustment when calculating AMT liability.

Question 15

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. This increases Evan's AMT adjustment associated with long-term contracts for the current year.

Accepted Answer

The answer of Evan is a contractor who constructs both...

Question 16

In 2017, the amount of the deduction for medical expenses for regular tax purposes may be different than for AMT purposes if the taxpayer is at least age 65.

Accepted Answer

The answer of In 2017, the amount of the deduction...

Question 17

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

Accepted Answer

When a business property is sold, the gain on the sale may be subject to the alternative minimum tax (AMT), which could result in an adjustment to the taxpayer's AMT liability.

Question 18

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

Accepted Answer

Passive losses can be deductible under certain conditions for regular tax purposes but may be treated differently for Alternative Minimum Tax (AMT) calculations, potentially requiring adjustments.

Question 19

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.

Accepted Answer

The answer of The deduction for charitable contributions in calculating...

Question 20

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

Accepted Answer

The answer of Kerri, who has AGI of $120,000, itemized...

Quiz 12: Alternative Minimum Tax