Deck 12: Alternative Minimum Tax

Question 1

Prior to consideration of tax credits, Clarence's regular income tax liability is $200,000 and his tentative minimum tax TMT) is $180,000. Clarence holds nonrefundable business tax credits of $35,000. His tax liability is $165,000.

Answer 1

False

Question 2

Paul incurred circulation expenditures of $180,000 in 2018 and deducted that amount for regular income tax purposes. Paul has a $60,000 negative AMT adjustment for each of 2019, 2020, and for 2021.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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 7

Assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately for 2018 is the same as the AMT exemption amount for married taxpayer filing jointly filing status.

Question 8

In deciding whether 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.

Question 9

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 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

Keosha acquires used 10-year personal property to use in her business in 2018 and uses MACRS depreciation for regular income tax purposes. As a result, Keosha will incur a positive AMT adjustment in 2018, because AMT depreciation is slower.

Question 17

After personal property is fully depreciated for both regular income tax purposes and AMT purposes, no AMT adjustment will be required as a result of the sale of the property.

Question 18

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

Question 19

If the AMT base is greater than $191,100, the AMT rate for an individual taxpayer is the same as the AMT rate for married taxpayer, filing jointly.

Question 20

Joel placed real property in service in 2018 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 2018 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Question 21

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 22

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

Question 23

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.

Question 24

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).

Question 25

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.

Question 26

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.

Question 27

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 28

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.

Question 29

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 30

Nell records a personal casualty loss deduction of $14,500 for regular income tax purposes The loss was the result of a Federally-declared disaster.). 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.

Question 31

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.

Question 32

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

Question 33

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

Question 34

In 2018, the amount of the deduction for medical expenses for regular tax purposes may be different than for AMT purposes.

Question 35

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 36

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 37

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

Question 38

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

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

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 41

Kay claimed percentage depletion of $119,000 for the current year for regular income tax purposes. Cost depletion would have been $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 preference in computing AMTI.

Question 42

On February 1, 2018, Omar acquires used 7-year personal property for $100,000 for use in his business. Omar does not elect § 179 expensing, but he does take the maximum regular cost recovery deduction. As a result, Omar incurs a positive AMT adjustment in 2018 of what amount?

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

Question 43

Which of the following statements is correct?

A) If the tentative minimum tax is $100,000 and the regular income tax liability is $120,000, AMT is $20,000.
B) If the tentative minimum tax is $120,000 and the regular income tax liability is $100,000, AMT is $120,000.
C) If the tentative minimum tax is $100,000 and the regular income tax liability is $120,000, AMT is a negative $20,000.
D) If the tentative minimum tax is $120,000, and the regular income tax liability is $100,000, AMT is $20,000.

Question 44

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) $125,000
D) $150,000

Question 45

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

Question 46

Marvin, the vice president of Lavender, Inc., exercises stock options for 100 shares of stock in March 2018. 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 2014 and all restrictions on the free transferability had lapsed by the exercise date.

A) If Marvin sells the stock in December 2018 for $3,000, his AMT adjustment in 2018 is a positive adjustment of $800.
B) If Marvin sells the stock in December 2019 for $3,000, his AMT adjustment in 2019 is $0.
C) If Marvin sells the stock in December 2018 for $3,000, his AMT adjustment in 2018 is a negative adjustment of $800.
D) If Marvin sells the stock in December 2019 for $3,000, his AMT adjustment in 2019 is a negative adjustment of $1,000.
E) None of the above.

Question 47

For regular income tax purposes, Yolanda, who is single, is in the 32% tax bracket. Her AMT base is $420,000. Her tentative AMT is:

A) $49,686.
B) $109,200.
C) $113,778.
D) $117,600.
E) None of the above.

Question 48

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 $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad \$ 1,000$
Adoption expenses credit $\quad$ $\quad$ $\quad$ $\quad$ 5,000 Calculate Justin's tax liability after credits.

A) $190,000
B) $194,000
C) $195,000
D) $200,000

Question 49

Akeem, who does not itemize, incurred a net operating loss NOL) of $50,000 in 2017. His deductions in 2017 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 2018?

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

Question 50

Interest income on private activity bonds issued in 2015, reduced by expenses incurred in carrying the bonds, is a preference item that is included in computing AMTI.

Question 51

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 52

Dale owns and operates Dale's Emporium as a sole proprietorship. On January 30, 2004, Dale's Emporium acquired a warehouse for $100,000. For regular income tax purposes in 2018, depreciation was deducted under MACRS using a 2.564% rate. 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.

Question 53

Celia and Christian, who are married filing jointly, have one dependent and do not itemize deductions. They report taxable income of $492,000 and tax preferences of $53,000 in 2018. What is their AMT base for 2018?

A) $0.
B) $492,000.
C) $459,600.
D) $569,000.

Question 54

Jackson sells qualifying small business stock for $125,000 adjusted basis of $105,000) in 2018 the stock was acquired in 2012). 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 preference in calculating Jackson's AMTI.

Question 55

In 2018, Glenn recorded 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 2018, Glenn can deduct $108,000 for regular income tax purposes and for AMT purposes.
B) Glenn reports a $108,000 tax preference in 2018 as a result of the passive activity.
C) For regular income tax purposes, none of the passive activity loss is allowed in 2018.
D) In 2018, Glenn reports a positive adjustment of $25,000 as a result of the passive activity loss.

Question 56

A, B and C are each single, report wage income of $135,000, and take the standard deduction. The following additional information is provided about each taxpayer. A: Resides in New York. $45,000 interest income from Treasury bonds. B: Resides in Nevada. $45,000 capital gain from the sale of stock.
C: Resides in Florida. $45,000 interest income from private-activity municipal bonds.
All else being equal and taking into consideration the principles underlying the AMT, which of these taxpayers has the highest likelihood of being subject to the AMT in the current tax year?

A) Taxpayer A.
B) Taxpayer B.
C) Taxpayer C.
D) All three taxpayers are equally likely to be in AMT.

Question 57

Which of the following statements concerning capital gains and losses and the AMT is correct?

A) The lower tax rate on net capital gain is not allowed in the calculation of tentative minimum tax.
B) Net capital losses disallowed for regular tax purposes are deductible in the calculation of AMTI
C) The lower tax rate on net capital gain applies in calculating both regular income tax and the tentative minimum tax.
D) Net capital gain is taxed at the maximum 28% AMT rate

Question 58

Wallace owns a construction company that builds both commercial and residential buildings. He contracts to build a residential building for $800,000, and 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 gross income on the contract. Under the percentage of completion method, the income recognized under the contract would have been
$60,000. Wallace's AMT effect is:

A) $0.
B) $60,000 negative adjustment.
C) $60,000 positive adjustment.
D) $800,000 positive adjustment.

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

Question 60

In the current tax year, for regular tax purposes, Avery reports $65,000 of income and $190,000 of deductions from passive activities. For AMT purposes, the passive activity income amount is unchanged, but deductions from passive activities total $150,000. What is Avery's suspended passive loss for regular tax and for AMT purposes?

A) $0; $0.
B) $40,000); $40,000).
C) $125,000); $85,000).
D) $190,000); $150,000).

Question 61

In 2018, Brenda has calculated her regular tax liability to be $32,500 and her tentative minimum tax TMT) to be $36,300. Additionally, Brenda holds an alternative minimum tax credit of $6,200 from 2014.
What is Brenda's total 2018 Federal income tax liability?

A) $26,300.
B) $30,100.
C) $32,500.
D) $36,300.

Question 62

In the current tax year David, a 32-year-old single taxpayer, reported itemized deductions of $24,500, comprised of the following amounts. $6,000 of medical expenses in excess of 7.5% of AGI) 4,500 of property taxes on his home
2,500 of investment expenses not limited by investment income) 3,000 of charitable contributions
8,500 of home mortgage interest
Which of David's itemized deductions could create an AMT preference?

A) All of the itemized deductions potentially create an AMT preference.
B) The deduction for medical expenses and property taxes potentially create an AMT preference.
C) The deduction for investment expenses and property taxes potentially create an AMT preference.
D) None of the itemized deductions potentially create an AMT preference.

Question 63

Brenda correctly has calculated her regular tax liability to be $32,500 and her tentative minimum tax TMT) to be $36,300. Additionally, Brenda has an adoption expense credit personal, nonrefundable credit) of $6,200. What is Brenda's total Federal income tax liability?

A) $26,300.
B) $30,100.
C) $32,500.
D) $36,300.

Question 64

lculating regular taxable income, what effect does this have in calculating AMTI?

Question 65

In 2018, Liam's filing status is married filing separately. For regular tax purposes, he has three dependents. Liam does not itemize deductions; his regular taxable income is $456,000. What is Liam's 2018 AMT base?

A) $0.
B) $413,300.
C) $456,000.
D) $468,000.

Question 66

Tamara operates a natural gas sole proprietorship that incurred $68,000 of intangible drilling costs IDC) in the current year. Her sole proprietorship's net natural gas income for the year is $72,000. What is the sole proprietorship's current year IDC preference?

A) $6,800.
B) $10,800.
C) $14,400.
D) $46,800.

Question 67

Which of the following would not cause an individual taxpayer's AMTI to increase in the current year?

A) Investing in private-activity municipal bonds.
B) Paying real estate taxes due in January of the next year in the current year.
C) Amortizing circulation expenditures over three years for regular tax purposes.
D) Exercising incentive stock options.