Question 1

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

Accepted Answer

When a business property is sold, the sale can trigger an adjustment for the Alternative Minimum Tax (AMT). This adjustment can increase the taxpayer's AMT liability, depending on various factors such as the amount of gain realized on the sale and the taxpayer's other AMT-related deductions and credits.

Question 2

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.

Accepted Answer

The recognized gain for regular income tax purposes and the recognized gain for AMT purposes on the sale of stock acquired under an ISO program can be different because the adjusted basis is calculated differently for AMT purposes. Under AMT rules, the adjusted basis of the stock is the fair market value on the date of exercise, which can result in a higher basis and a lower AMT gain.

Question 3

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.

Accepted Answer

The AMT positive adjustment is the difference between the fair market value at exercise ($7,600) and the exercise price ($6,000), which is $1,600. However, there is no AMT negative adjustment in the same year as the sale; the negative adjustment occurs when the stock is sold in a qualifying disposition.

Question 4

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.

Accepted Answer

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

Question 5

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 question does not provide enough information to determine whether there is a positive AMT adjustment associated with the sale of the land.

Question 6

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.

Accepted Answer

Taxpayers who are age 65 or older are allowed to deduct medical expenses that exceed 7.5% of their adjusted gross income under both the regular income tax and AMT regimes. However, the percentage floor for medical expense deductions for non-elderly taxpayers is 10% under the regular income tax and 7.5% under the AMT. Therefore, the amount of the deduction for medical expenses may be different for elderly taxpayers depending on their tax situation.

Question 7

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.

Accepted Answer

The information provided states that for both regular income tax purposes and AMT purposes, the casualty loss deduction is $14,500. Therefore, the statement is true.

Question 8

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 9

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.

Accepted Answer

The answer of Kerri,who had AGI of $120,000,itemized her deductions...

Question 10

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).

Accepted Answer

The answer of In the current tax year,Ben exercised an...

Question 11

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 personal and dependency exemption is not allowed for AMT purposes, which increases the taxpayer's AMT liability.

Question 12

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

Accepted Answer

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

Question 13

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.

Accepted Answer

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

Question 14

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 15

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

Accepted Answer

The answer of Because passive losses are not deductible in...

Question 16

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 17

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 18

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 may be used for regular tax purposes, but the percentage of completion method is required for AMT purposes for all long-term contracts.

Question 19

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 is true. By capitalizing and amortizing the expenses over 10 years, the taxpayer can avoid the AMT adjustment for research and experimental expenditures.

Question 20

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...

Quiz 15: Alternative Minimum Tax