Question 1

Interest on a home equity loan may be deductible for AMT purposes.

Accepted Answer

According to the IRS, "Interest on home equity loans and lines of credit generally is deductible regardless of how you use the loan proceeds, including for purposes of AMT." However, there are certain limitations on the amount of interest that can be deducted, depending on the purpose of the loan and the total amount of the loan. It is important to consult a tax professional or financial advisor for specific guidance on your individual situation.

Question 2

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.

Accepted Answer

This is true. By capitalizing and amortizing research and experimental expenditures over a 10-year period, the taxpayer can avoid the AMT adjustment for these expenses.

Question 3

Tricia sold land that originally cost $105,000 for $112,000.There is a positive AMT adjustment of $7,000 associated with the sale of the land.

Accepted Answer

The answer of Tricia sold land that originally cost $105,000...

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

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 6

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

Gambling losses are deductible to the extent of gambling winnings for both regular tax and AMT purposes, so there is no AMT adjustment needed.

Question 7

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 8

In 2012, 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 AMT adjustment should be the difference between the fair market value and the exercise price, which is $20,000 ($190,000 - $170,000), not $0.

Question 9

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. Therefore, no AMT adjustment is required.

Accepted Answer

Evan's decision to use the percentage of completion method for all of his contracts means that he is not using the completed contract method. Therefore, no AMT adjustment is required.

Question 10

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

Accepted Answer

When selling business property, the difference between the adjusted basis and the sale price is used to calculate the gain or loss for regular tax purposes. However, for AMT purposes, the adjusted basis may be different, resulting in an adjustment to the AMT calculation.

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 correct. The personal and dependency exemptions are disallowed for AMT purposes, resulting in a positive AMT adjustment.

Question 12

The amount of the deduction for medical expenses under the regular income tax may be different than for AMT purposes.

Accepted Answer

The AMT has its own set of rules and limits regarding deductions for medical expenses, which may be different than the regular income tax deductions. Therefore, the amount of deduction for medical expenses may vary between the two systems.

Question 13

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 14

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

Passive losses are deductible for AMT purposes if they are deductible for regular tax purposes, so adjustments may be required.

Question 15

Tammy expensed mining exploration and development costs of $100,000 incurred in 2012.She will be required to make negative AMT adjustments for each of the next nine years and a positive AMT adjustment in the current tax year.

Accepted Answer

Mining exploration and development costs are a preference item for AMT purposes and therefore require negative adjustments spread out over nine years. In addition, since Tammy expensed these costs in 2012, she will need to make a positive AMT adjustment in the current tax year to add back the expenses for regular tax purposes.

Question 16

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 17

The exercise of an incentive stock option (ISO) increases both the AMTI and regular taxable income in the year of exercise.

Accepted Answer

The exercise of an ISO increases the Alternative Minimum Tax Income (AMTI) but not the regular taxable income in the year of exercise. Regular taxable income is affected when the stock is sold.

Question 18

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 can differ because the adjusted basis used for calculating the gain may be different for purposes of the regular tax system and the AMT system. Under the regular tax system, the adjusted basis is typically the fair market value of the stock on the exercise date, while under the AMT system, it is the exercise price paid for the stock. This can result in a higher gain subject to AMT.

Question 19

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...

Question 20

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 is $26,600.

Accepted Answer

The AMT casualty loss deduction is calculated the same way as the regular tax casualty loss deduction, which means it would have also been reduced by 10% of Nell's AGI. Therefore, the AMT casualty loss deduction would also be $14,500.

Quiz 15: Alternative Minimum Tax