Question 1

To obtain the rehabilitation expenditures tax credit certain criteria must be satisfied. Which of the following are correct statements about the credit?
I.The amount spend on the rehabilitation must exceed $5,000.
II.The rehabilitation work cannot remove more than 25% of the internal walls and framework.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The rehabilitation expenditures tax credit typically requires that the rehabilitation work does not remove more than 25% of the internal walls and framework, making statement II correct. Statement I is incorrect as the requirement is usually based on a percentage of the building's adjusted basis, not a fixed dollar amount like $5,000.

Question 2

To obtain the rehabilitation expenditures tax credit certain criteria must be satisfied. Which of the following are correct statements about the credit?
I.If the rehabilitated structure is sold before the end of the ten-year period following the year of the tax credit, recapture occurs.
II.The amount of the credit can be either 10% or 20% of qualified expenditures, depending on the classification of the building.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The answer of To obtain the rehabilitation expenditures tax credit...

Question 3

When calculating AMTI, individual taxpayers must add back the following:
I.The standard deduction amount.
II.Gambling losses.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The standard deduction must be added back to calculate the Alternative Minimum Taxable Income (AMTI), but gambling losses are not added back.

Question 4

When calculating AMTI, individual taxpayers must add back the following:
I.Charitable contributions.
II.Qualified home mortgage interest.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

When calculating Alternative Minimum Taxable Income (AMTI), individual taxpayers do not add back charitable contributions or qualified home mortgage interest. These items are allowable deductions in the calculation of AMTI.

Question 5

Which of the following statements are correct concerning the general business credit?
I.The general business tax credit only applies to an individual or corporation with a tax liability in excess of $100,000.
II.The general business credit only applies to an individual or corporation that has a tax credit carryover or can claim more than one general business credit during the year.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

Statement I is incorrect as there is no minimum tax liability required to claim the general business credit. Statement II is correct as an individual or corporation must have a tax credit carryover or be able to claim more than one general business credit during the year to claim the general business credit.

Question 6

Which of the following itemized deductions is not allowed for AMT purposes?
A)State income taxes.
B)Qualified housing interest.
C)Investment interest.
D)Interest on home equity loan where loan proceeds are used to improve the residence.
E)Charitable contributions.

Accepted Answer

State income taxes are not deductible for AMT purposes. This is because the AMT already includes a provision to take into account the state and local tax deductions, effectively eliminating the deduction for state income taxes. The other deductions listed are allowed for AMT purposes, subject to certain limitations and conditions.

Question 7

On October 23, 2018, McIntyre sells 700 shares of stock at $26 per share. McIntyre acquired the stock on June 1, 2017, when he exercised his option to purchase the shares through his company's incentive stock option plan. The exercise price was $12 per share and the fair market value of the stock at the date of exercise was $16 per share. For 2018, McIntyre must report
?
$\begin{array}{ll}
\text { Ordinary } & \text { Capital } \
\text { Income } & \text { Gain }
\end{array}$
A)$ \$-0-\quad \$ 7,000 $
B) $ \$-0-\quad \$ 9,800 $
C) $ \$ 9,800 \quad \$-0 -$ 
D) $ \$ 2,800 \quad \$ 7,000 $

Income Gain

Accepted Answer

The answer of On October 23, 2018, McIntyre sells 700...

Question 8

Patricia and her daughter Sheila each own 50% of Draper, Inc. Patricia is the president and CFO of the corporation and receives a salary of $125,000. Other individuals with similar responsibilities as Patricia are paid approximately the same salary. Sheila, who is vice president, is paid a salary of $50,000. However, Sheila is not involved in the business decisions and rarely visits the office. Which of the following are correct statements?
I.Draper can deduct $175,000 as salary expense.
II.Sheila must report $50,000 as income.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The answer of Patricia and her daughter Sheila each own...

Question 9

Hillside Group, a partnership, purchased a certified historic building for $60,000 that was originally placed in service in 1929. The partnership incurs $180,000 rehabilitating the building. The building serves as the partnership's headquarters. The rehabilitation is completed in November 2018. What amount can the Hillside Group claim on their partnership return as a rehabilitation tax credit?
A)$ 0
B)$6,000
C)$12,000
D)$36,000
E)$48,000

Accepted Answer

The Hillside Group can claim a rehabilitation tax credit equal to 20% of the qualified rehabilitation expenses for certified historic structures, which includes the cost of rehabilitation after the building was acquired. In this case, the qualified rehabilitation expenses are $180,000, so the tax credit is $36,000 (20% of $180,000). Therefore, the correct answer is D.

Question 10

An exemption amount is allowed for the AMT calculation
I.as a deduction from tentative AMTI.II.to provide the average individual taxpayer with the opportunity to not be effected by the AMT provisions.
III.through legislative grace for taxpayers with moderate amounts of taxable income and without significant preferences and/or adjustments.
IV.In the amount of $109,400 for married taxpayers filing jointly.
​
A)Only statement I is correct.
B)Only statement IV is correct.
C)Statements II and III are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.

Accepted Answer

The exemption amount for the Alternative Minimum Tax (AMT) calculation serves multiple purposes: it acts as a deduction from tentative Alternative Minimum Taxable Income (AMTI) to help ensure that average taxpayers are not affected by AMT, it is designed to exempt taxpayers with moderate income who don't have significant preferences or adjustments, and the specific amount mentioned, $109,400 for married taxpayers filing jointly, is accurate as of the last update, reflecting the exemption amount for a specific filing status.

Question 11

Which of the following is (are) AMT tax preference item(s)?
I.Tax-exempt interest from state and municipal bonds.
II.Percentage depletion in excess of basis.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

Tax-exempt interest from state and municipal bonds is not considered as an AMT tax preference item as it is already exempt from regular income tax. However, percentage depletion in excess of basis is considered as an AMT tax preference item.

Question 12

Dunn Company bought a certified historic building in downtown Lafayette for $75,000. The land was not purchased; it is being leased. The building was originally placed into service in 1918. Dunn spends $100,000 to rehabilitate the building with the intent to develop a microbrewery on the site. The company retained 80% of the external and internal walls and framework. Assume the amount of the historic building rehabilitation credit Dunn can claim is $20,000. What is the basis in the building for depreciation purposes?
A)$100,000
B)$145,000
C)$105,000
D)$155,000
E)$175,000

Accepted Answer

The basis for depreciation purposes is the original purchase price of the building ($75,000) plus the rehabilitation costs ($100,000), totaling $175,000. However, because the historic building rehabilitation credit of $20,000 (20% of $100,000) reduces the basis, the correct basis for depreciation is $175,000 - $20,000 = $155,000.

Question 13

Which of the following is (are) AMT tax preference item(s)?
I.Net operating loss deduction.
II.Exclusion of gain on qualified small business stock.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The exclusion of gain on qualified small business stock is an AMT tax preference item, while the net operating loss deduction is not.

Question 14

On October 2, 2018, Miriam sells 1,000 shares of stock at $20 per share. Miriam acquired the stock on November 12, 2017, when she exercised her option to purchase the shares through her company's incentive stock option plan. The exercise price was $11 per share and the fair market value of the stock at the date of exercise was $14 per share. For 2018, Miriam must report
?
$\begin{array}{ll}
\text { Ordinary } & \text { Capital } \
\text { Income } & \text { Gain }
\end{array}$
A)$\begin{array}{ll}
\$ 3,000 & \$ 6,000 \\end{array}$ 
B) $\begin{array}{ll}\$ 6,000 & \$ 3,000 \\end{array}$ 
C) $\begin{array}{ll}\$ 9,000 & \$-0- \\end{array}$ 
D) $\begin{array}{ll}\$-0- & \$ 9,000
\end{array}$

Income Gain

Accepted Answer

The answer of On October 2, 2018, Miriam sells 1,000...

Question 15

With regard to the alternative minimum tax (AMT),
I.the AMT rate equals the highest individual income tax rate.
II.the AMT is separate and distinct from, yet parallel to, the regular income tax system.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

II is correct because the AMT operates as a parallel tax system to the regular income tax, designed to ensure that individuals and corporations with substantial income cannot avoid significant tax liability through deductions and credits. Statement I is incorrect because the AMT rates are not necessarily equal to the highest individual income tax rate; they are set at 26% or 28% for individuals.

Question 16

Helen receives the right to acquire 700 shares of Smith Corporation stock through the company's incentive stock option plan. The fair market value of the stock at the date of the grant is $8 and the exercise price of the option is $15 per share. The fair market value of the stock at the date of exercise is $19. Helen will recognize income at the date of grant and the exercise date of
?
 $\begin{array}{llcc}
  \text { Date of grant } &  \text { Exercise date } \
\end{array}$ 
a. $\$-0- \quad\quad\quad\quad\quad\$-0-$
b. $\$ - 0 - \quad\quad\quad\quad\quad \$ 2,800$
c. $\$ - 0 - \quad\quad\quad\quad\quad \$ 4,900$
d. $\$ 5,600 \quad\quad\quad\quad\quad \$ - 0-$

Accepted Answer

The answer of Helen receives the right to acquire 700...

Question 17

Which of the following credits can not be used to reduce the alternative minimum tax?
A)Adoption credit
B)Foreign tax credit
C)Child-and dependent-Care credit
D)Lifetime Learning credit
E)Research and experimental credit

Accepted Answer

The answer of Which of the following credits can not...

Question 18

Karen receives the right to acquire 400 shares of Fremont Corporation stock through the company's incentive stock option plan. The fair market value of the stock at the date of the grant is $15 and the exercise price of the option is $19 per share. The fair market value of the stock at the date of exercise is $22. At the date of exercise, the tax consequences to Karen and the Fremont Corporation are
?
$\begin{array} { c l } 
\text { Karen } &{ \text { Fremont } } \\end{array}$
A)$\begin{array} { c l } \$ 1,600 & \$ 1,600 \\end{array}$
B)$\begin{array} { c l } \$ 1,600 & \$ - 0 - \\end{array}$
C)$\begin{array} { c l } \$ - 0 - & \$ - 0 - \\end{array}$
D)$\begin{array} { c l } \$ - 0 - & \$ 1,600
\end{array}$

Accepted Answer

The answer of Karen receives the right to acquire 400...

Question 19

Kelly purchased a warehouse for her sole proprietorship on January 5, 2017 for $1,000,000. She claims MACRS depreciation of $25,641 for the year. The depreciation under the Alternative Depreciation System (ADS) is $25,000. What is the amount of Kelly's AMT adjustment for depreciation on the warehouse?
A)no adjustment is necessary
B)a positive $ 641
C)a negative $ 641
D)a positive $25,641
E)a negative $25,641

Accepted Answer

The AMT adjustment is the difference between the MACRS depreciation and the ADS depreciation. Here, it is $25,641 (MACRS) - $25,000 (ADS) = $641. Since MACRS is greater, the adjustment is positive.

Question 20

The AMT applies to
I.Individual taxpayers
II.Corporate taxpayers
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The Alternative Minimum Tax (AMT) applies to individual taxpayers. The corporate AMT was repealed by the Tax Cuts and Jobs Act of 2017.

Quiz 15: Choice of Business Entity-Other Considerations

When calculating AMTI, individual taxpayers must add back the following: I.The standard deduction amount. II.Gambling losses.

When calculating AMTI, individual taxpayers must add back the following: I.Charitable contributions. II.Qualified home mortgage interest.

Which of the following itemized deductions is not allowed for AMT purposes?

Which of the following is (are) AMT tax preference item(s) ? I.Tax-exempt interest from state and municipal bonds. II.Percentage depletion in excess of basis.

Which of the following is (are) AMT tax preference item(s) ? I.Net operating loss deduction. II.Exclusion of gain on qualified small business stock.

With regard to the alternative minimum tax (AMT) , I.the AMT rate equals the highest individual income tax rate. II.the AMT is separate and distinct from, yet parallel to, the regular income tax system.

Which of the following credits can not be used to reduce the alternative minimum tax?

The AMT applies to I.Individual taxpayers II.Corporate taxpayers

Quiz 15: Choice of Business Entity-Other Considerations

When calculating AMTI, individual taxpayers must add back the following: I.The standard deduction amount. II.Gambling losses. ​

When calculating AMTI, individual taxpayers must add back the following: I.Charitable contributions. II.Qualified home mortgage interest. ​

Which of the following itemized deductions is not allowed for AMT purposes?

Which of the following is (are) AMT tax preference item(s) ? I.Tax-exempt interest from state and municipal bonds. II.Percentage depletion in excess of basis. ​

Which of the following is (are) AMT tax preference item(s) ? I.Net operating loss deduction. II.Exclusion of gain on qualified small business stock. ​

With regard to the alternative minimum tax (AMT) , I.the AMT rate equals the highest individual income tax rate. II.the AMT is separate and distinct from, yet parallel to, the regular income tax system. ​