Deck 12: Alternative Minimum Tax

Question 1

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

Answer 1

False

Question 2

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 2

False

Question 3

Keosha acquires used 10-year personal property to use in her business in 2019 and uses MACRS depreciation for regular income tax purposes, even though the asset is eligible for full expensing.As a result, Keosha will incur a positive AMT adjustment in 2019, because AMT depreciation is slower.

Answer 3

False

Question 4

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 the phaseout for a single taxpayer.

Question 5

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

Question 6

Assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately for 2019 is exactly half of the AMT exemption amount for an individual taxpayer.

Question 7

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 8

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 for the year is
$165,000.

Question 9

Joel placed real property in service in 2019 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 2019 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

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 in calculating both the regular income tax and the AMT.

Question 11

Paul incurred circulation expenditures of $180,000 in 2019 and deducted that amount for regular income tax purposes.Paul has a $60,000 negative AMT adjustment for each of 2020, 2021, and for 2022.

Question 12

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

Question 13

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 14

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 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

If the AMT base is greater than $194,800, the AMT rate for an individual taxpayer is the same as the AMT rate for married taxpayer, filing jointly.

Question 20

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 21

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

Question 22

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 23

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 10 years.

Question 24

Interest on a home equity loan that is not used to acquire or improve the taxpayer's principal residence cannot be deducted for AMT purposes.

Question 25

In 2019, the amount of the deduction for medical expenses for regular tax purposes may be different than for AMT
purposes.

Question 26

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

Question 27

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

Question 28

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 29

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 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.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 31

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

Question 32

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 33

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%, 50%, and 60%) may be applied to a different base amount.

Question 34

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 his AMT adjustment associated with long-term contracts for the current year.

Question 35

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 36

Kerri, who has AGI of $120,000, itemized her deductions in the current year.She paid mortgage interest of $17,000 on her primary residence and $2,400 of interest on a home equity loan.The proceeds of the home equity loan were used to purchase a new minivan for her family.Kerri incurs a positive AMT adjustment of $19,400 in computing AMT.

Question 37

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 38

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 actual loss was $26,600, but it was reduced by $100 and by $12,000 (10% ×
$120,000 AGI) for regular tax purposes.For AMT purposes, the casualty loss deduction also is $14,500.

Question 39

Cher sold undeveloped land that originally cost $150,000 for $225,000.A positive AMT adjustment of $75,000 is required as a result of the sale.

Question 40

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 41

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. $\begin{array}{llcc} \text { Child tax credit } &\$1,000\\ \text {Adoption expenses credit } &5,000\\\end{array}$
Calculate Justin's tax liability after credits.

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

Question 42

Vicki owns and operates a news agency (as a sole proprietorship).During 2019, 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 2019.In addition, Vicki incurred $15,000 in circulation expenditures in 2020 and again elected expense treatment.What AMT adjustments will be required in 2019 and 2020 as a result of the circulation expenditures?

A)$16,000 positive in 2019, $2,000 positive in 2020.
B)$16,000 negative in 2019, $2,000 positive in 2020.
C)$16,000 negative in 2019, $10,000 positive in 2020.
D)$16,000 positive in 2019, $10,000 positive in 2020.

Question 43

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)$50,348.
B)$109,200.
C)$113,704.
D)$117,600.

Question 44

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 45

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 AMT preference for excess depletion if she maximized her regular tax depletion deduction?

A)$15,000
B)$23,000
C)$25,000
D)$2,000

Question 46

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 47

Ashby, who is single and age 30, provides you with the following information from his financial records for 2019. $$\begin{array} { l l } \text { Regular income tax liability } & \$ 78,444 \\\text { AMTI } & 525,000 \\\text { Taxable income } & 295,000\end{array}$$ Calculate his AMT exemption for 2019.

A)$0
B)$3,675
C)$68,025
D)$71,700

Question 48

Dale owns and operates Dale's Emporium as a sole proprietorship.On January 30, 2005, Dale's Emporium acquired a warehouse for $100,000.In 2019, for regular tax purposes, the MACRS depreciation deduction was calculated using a 2.564% rate.Determine the AMT adjustment for depreciation and indicate whether it is positive or negative.

A)A $64 negative adjustment.
B)A $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 49

In 2019, 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 2019, Glenn can deduct $108,000 for regular income tax purposes and for AMT purposes.
B)Glenn reports a $108,000 tax preference in 2019 as a result of the passive activity.
C)For regular income tax purposes, none of the passive activity loss is allowed in 2019.
D)In 2019, Glenn reports a positive adjustment of $25,000 as a result of the passive activity loss.

Question 50

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 51

On February 1, 2019, Omar acquires used 7-year personal property for 100,000.The property will be used in his business.Omar does not elect § 179 expensing, but he does take the maximum regular tax depreciation deduction.As a result, Omar incurs a positive AMT adjustment in 2019 of what amount?

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

Question 52

Mitch, who is single and age 46 and has no dependents, had AGI of $100,000 this year.His potential itemized deductions were as follows. $$\begin{array} { l r } \text { Medical expenses (in excess of AGI floor) } & \$ 15,000 \\\text { State income taxes } & 3,000 \\\text { Real estate taxes } & 7,000 \\\text { Mortgage interest (acquisition of primary residence) } & 13,000 \\\text { Home equity loan interest (loan used to finance the } & 4,000 \\\text { purchase of a car) } & \\\text { Unreimbursed employee expenses } & 4,300\end{array}$$ What is the amount of Mitch's AMT adjustment for itemized deductions for 2019?

A)$10,000.
B)$12,300.
C)$16,300.
D)$34,300.

Question 53

Which of the following statements describing the alternative minimum tax (AMT) is most correct?

A)Generally, those taxpayers most concerned about being in AMT are low income taxpayers who elect the standard deduction.
B)The AMT was enacted in an attempt to limit the ability of taxpayers to engage in questionable tax planning activities.
C)The goal of the AMT is to try to ensure that all taxpayers with economic income pay at least some income tax.
D)None of these is true.

Question 54

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 55

Akeem, who does not itemize, incurred a net operating loss (NOL) of $50,000 in 2018.His deductions in 2018 included AMT tax preference items of $20,000, and he had no AMT adjustments.What is Akeem's alternative tax NOL deduction (ATNOLD) carryover to 2019?

A)$50,000
B)$30,000
C)$20,000
D)$40,000
E)None of these.

Question 56

Each of A, B, and C is each single, reports wage income of $435,000, and takes the standard deduction.The following additional information is provided about each taxpayer. A: Resides in New York and has $145,000 interest income from Treasury bonds.B: Resides in Nevada and has $145,000 capital gain from the sale of stock.
C: Resides in Florida and has $145,000 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

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000) in 2019 (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 58

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 59

Beulah, who is single and itemizes deductions, provides you with the following information from her financial records for 2019.Compute Beulah's AMTI. $$\begin{array} { l r } \text { Regular income tax liability } & \$ 104,694 \\\text { AMT positive adiustments } & 33,000 \\\text { AMT preferences } & 75,000 \\\text { Taxable income } & 370,000\end{array}$$

A)$0
B)$368,600
C)$407,700
D)$478,000
E)$490,000

Question 60

The AMT credit is created for any AMT that results from timing differences, but it is not created by any AMT that results from the adjustment for itemized deductions or exclusion preferences.

Question 61

Robin, who is a head of household and age 42, provides you with the following information from his financial records for 2019.Robin itemizes deductions. $$\begin{array} { l r } \text { Regular income tax liability } & \$ 142,125 \\\text { PositiveAMT adjustments } & 30,000 \\\text { AMT preferences } & 100,000 \\\text { Taxable income } & 481,000\end{array}$$ Calculate Robin's AMT for 2019.

A)$3,757.
B)$12,032.
C)$12,636.
D)$15,126.

Question 62

In 2019, 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 2019 AMT base?

A)$0.
B)$412,350.
C)$456,000.
D)$468,200.

Question 63

In the current tax year David, a 32-year-old single taxpayer, reported itemized deductions of $24,500, composed of the following amounts.
$6,000 of medical expenses (in excess of 10% 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 creates an AMT preference.

Question 64

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, he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile.During the year, he paid the following amounts of interest. $$\begin{array} { l r } \text { On his personal residence } & \$ 15,500 \\\text { On his condo } & 6,200 \\\text { On the home equity loan } & 4,800 \\\text { On credit card obligations } & 1,700\end{array}$$ What amount, if any, must Ted recognize as an AMT adjustment in 2019?

A)$0
B)$4,800
C)$6,200
D)$11,000

Question 65

Cindy, who is single and age 48, has no dependents and has adjusted gross income of $150,000 in 2019.Her potential itemized deductions are as follows. $$\begin{array} { l r } \text { Medical expenses (before percentage limitation) } & \$ 10,000 \\\text { State income taxes } & 2,500 \\\text { Real estate taxes } & 4,000 \\\text { Mortgage (qualified housing and qualified residence) interest } & 5,500 \\\text { Unreimbursed employee expenses } & 2,600\end{array}$$ What are Cindy's AMT adjustments for itemized deductions for 2019?

Question 66

Gunter, who is divorced, provides you with the following financial information for the current year.Calculate Gunter's AMTI. $\begin{array}{lr}\text { Salary } && \$ 460,000 \\\text { Gain on sale of land held nine months } && 50,000\\\text { (regular income tax basis is } \$ 14,000 \text { less than AMT basis) }\\\text { Traditional IRA contribution } && 5,000\\\text { Itemized deductions: }\\\text { Charitable contributions } & \$ 13,000 \\\text { Home mortgage interest on his principal residence } & 14,000\end{array}$
$\begin{array}{ccc}\text { State income taxes } & \underline{18,000} & (45,000) \\\text { Private activity municipal bond interest } && 25,000\end{array}$

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.

Question 68

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 69

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 2019.What is their AMT base for 2019?

A)$0.
B)$492,000.
C)$457,700.
D)$569,400.

Question 70

In 2019, 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 2015.
What is Brenda's total 2019 Federal income tax liability?

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

Question 71

In 2019, Linda incurs circulation expenses of $240,000 that she deducts in calculating taxable income.
a.Calculate Linda's AMT adjustment for circulation expenses for 2019, 2020, 2021, and 2022.
b.Advise Linda on how she could reduce or eliminate the AMT adjustment in 2019.

Question 72

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 73

Frederick sells equipment whose adjusted basis for regular income tax purposes is $345,000 and for AMT purposes is $380,000 (the equipment was ineligible for full expensing).The sales proceeds are $850,000.Determine the effect on:
a.Taxable income.
b.AMTI.

Question 74

Tad and Audria, who are married filing a joint return, have AMTI of $1,256,000 for 2019.Calculate their AMT exemption.

Question 75

In May 2015, Swallow, Inc., issues options to Karrie, a corporate officer, to purchase 100 shares of Swallow stock under an ISO plan.At the date the stock options are issued, the fair market value of the stock is $1,000 per share
and the option price is $1,200 per share.The stock becomes freely transferable in 2016.Karrie exercised the options in November 2015 when the stock was selling for $1,500 per share.She sold the stock in December 2019 for $1,800 per share.
a.Determine the amount of the AMT adjustment for 2015.
b.Determine the amount of the AMT adjustment for 2016.
c.Determine Karrie's recognized gain for regular income tax purposes and for
AMT purposes on the sale of the stock.
d.Determine the amount of the AMT adjustment for 2019.

Question 76

Bianca and David report the following for 2019. $\begin{array}{lr}\text { Regular income tax before credits } & \$ 132,000 \\\text { Tentative minimum tax before credits } & 145,000\end{array}$
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 $13,570.

Question 77

Arlene, who is single and itemizes deductions, reports taxable income for 2019 of $612,000.
Calculate her alternative minimum tax, if any, given the following additional information. $$\begin{array}{l}\text { AMT adjustments }\\\begin{array} { c c } \text { Positive } & \$ 22,000 \\\text { Negative } & ( 25,000 ) \\\text { Tax preferences } & 146,000\end{array}\end{array}$$

Question 78

Use the following selected data to work backward and calculate Devon's taxable income.Devon itemizes deductions. $$\begin{array} { l r } \text { Tax preferences } & \$ 45,000 \\\text { Positive AMT adjustments } & 52,000 \\\text { Negative AMT adjustments } & 15,000 \\\text { AMTI } & 290,000\end{array}$$

Question 79

Caroline and Clint are married, have no dependents, and file a joint return in 2019.Use the following information to calculate their Federal income tax liability.
$$\begin{array} { l r } \text { AMTI } & \$ 985,000 \\\text { Regular income tax liability } & 121,129 \\\text { AMT preferences } & 190,000\end{array}$$

Question 80

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.