Question 1

Mitch,who is single and has no dependents,had AGI of $100,000 in 2010.His potential itemized deductions were as follows:  What is the amount of Mitch's AMT adjustment for itemized deductions for 2010?

Accepted Answer

The answer of Mitch,who is single and has no dependents,had...

Question 2

On January 3,1997,White Corporation acquired an office building for $100,000 and claimed MACRS depreciation of 2.461%.The Alternative Depreciation System rate for the first recovery year is 2.396%.What was White's AMT adjustment (or preference)for depreciation with respect to the office building in 1997?

Accepted Answer

The AMT adjustment is calculated by taking the difference between the MACRS depreciation and the Alternative Depreciation System (ADS) depreciation. The MACRS depreciation is $100,000 * 2.461% = $2,461. The ADS depreciation is $100,000 * 2.396% = $2,396. The difference is $2,461 - $2,396 = $65, which is a positive adjustment.

Question 3

Which of the following normally produces positive AMT adjustments?

Accepted Answer

Real property taxes, standard deduction, and personal exemption deduction are all not allowed under AMT, leading to positive AMT adjustments.

Question 4

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 2010,he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile.During 2010,he paid the following amounts of interest:  What amount,if any,must Ted recognize as an AMT adjustment in 2010?

Accepted Answer

Ted must recognize $4,800 as an AMT adjustment in 2010.

Since Ted borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile, the interest paid on the loan is not deductible for regular tax purposes but is deductible for AMT purposes.

Ted paid $6,200 in interest during 2010 ($3,400 on the personal residence and $2,800 on the condo). However, only the interest related to the home equity loan (i.e., $50,000/($50,000+$200,000) * $6,200 = $1,240) is an AMT adjustment.

Therefore, Ted must add back $1,240 to his income for AMT purposes. Since the tax rate for AMT is 26%, Ted's AMT adjustment is $1,240 * 26% = $322. Ted's total AMT adjustment for 2010 is $322 * 15 = $4,830 (since the AMT exemption is phased out for amounts above certain thresholds), but he is allowed to offset $30,000 of his AMT adjustment by his AMT tax credit, leaving him with an AMT adjustment of $4,800.

Question 5

Omar acquires used 7-year personal property for $100,000 to use in his business in February 2010.Omar does not elect § 179 expensing,but does take the maximum regular cost recovery deduction.As a result,Omar will have a positive AMT adjustment in 2010 of what amount?

Accepted Answer

The regular depreciation for the 7-year property is $100,000/7 = $14,285. However, the maximum regular cost recovery deduction for 2010 is limited to $11,160 ($3,160 plus 20% of remaining $50,000 basis after subtracting the salvage value of $20,000). 
The positive AMT adjustment is the difference between the regular depreciation and the AMT depreciation, which is calculated using the straight-line method and the ADS recovery period of 10 years for 7-year property. 
Therefore, the AMT depreciation for 2010 is $100,000/10 = $10,000, and the AMT adjustment is $14,285 - $10,000 = $4,285. However, the maximum AMT adjustment for 2010 is limited to $3,580 ($11,160 - $7,580, which is 70% of the regular depreciation), so the positive AMT adjustment is $3,580.

Question 6

Marvin,the vice president of Lavender,Inc. ,exercises stock options for 100 shares of stock in March 2010.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 2007 and all restrictions on the free transferability had lapsed by the exercise date.

Accepted Answer

The answer of Marvin,the vice president of Lavender,Inc. ,exercises stock...

Question 7

In 2010,Ray incurs $60,000 of mining exploration expenditures,and deducts the entire amount for regular income tax purposes.Which of the following statements is incorrect?

Accepted Answer

The AMT adjustment for mining exploration expenditures can be avoided if the taxpayer elects to write the expenditures off over a 10-year period, making statement D incorrect.

Question 8

Which of the following itemized deductions will be the same amount for the regular income tax and the AMT?

Accepted Answer

Charitable contributions are deductible in the same manner for both regular income tax and the Alternative Minimum Tax (AMT).

Question 9

Prior to the effect of tax credits,Eunice's regular income tax liability is $200,000 and her tentative AMT is $190,000.Eunice has general business credits available of $12,500.Calculate Eunice's tax liability after tax credits.

Accepted Answer

The answer of Prior to the effect of tax credits,Eunice's...

Question 10

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

Accepted Answer

The AMT adjustment for a long-term contract under the completed contract method is the percentage of the profit or loss that would have been recognized if the percentage of completion method had been used. In this case, the difference between the income recognized under the percentage of completion method ($60,000) and the income recognized under the completed contract method (which is zero) results in a positive adjustment of $60,000.

Question 11

Erin owns a mineral property that had a basis of $10,000 at the beginning of the year.The property qualifies for a 15% depletion rate.Gross income from the property was $120,000 and net income before the percentage depletion deduction was $50,000.What is Erin's tax preference for excess depletion?

Accepted Answer

Depletion = $120,000 x 15% = $18,000Excess depletion = $18,000 - $10,000 = $8,000

Question 12

In 2010,Glenda had a $97,000 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?

Accepted Answer

For regular income tax purposes, passive activity losses can only be deducted to the extent of passive activity income. Since Glenda has no other passive activities, none of the loss is allowed in 2010.

Question 13

Factors that can cause the adjusted basis for AMT purposes to be different from the adjusted basis for regular income tax purposes include the following:

Accepted Answer

Option (a) is correct because the amount of depreciation deducted for AMT purposes is usually calculated using different methods than those used for regular income tax purposes. For example, depreciation under the AMT system can be calculated using straight-line depreciation while the same asset can be depreciated using accelerated methods for regular income tax purposes.

Option (b) is correct because for ISOs, the spread (the difference between the fair market value of the stock and the exercise price) is recognized as taxable income for AMT purposes but is not recognized for regular income tax purposes.

Option (c) is also correct because, for AMT purposes, two-percent miscellaneous itemized deductions are not deductible. This means that the adjusted basis for AMT purposes will likely be higher than it would be for regular income tax purposes.

Therefore, the combined effect of all three options is the reason why the adjusted basis for AMT purposes can be different from the adjusted basis for regular income tax purposes which makes option (e) the correct answer.

Question 14

Robin,who is a head of household and age 42,provides you with the following information from his financial records for 2010.  Calculate his AMT for 2010.

Accepted Answer

The answer of Robin,who is a head of household and...

Question 15

Akeem,who does not itemize,incurred a net operating loss (NOL)of $50,000 in 2010.His deductions in 2010 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 2011?

Accepted Answer

AMT tax preference items are not deductible for regular tax purposes but are deductible for AMT purposes. Therefore, Akeem's taxable income for regular tax purposes will be reduced by the NOL and his AMT taxable income will be reduced by $30,000 ($50,000 - $20,000). Since the AMT taxable income is lower, the ATNOLD carryover will be based on the AMT NOL. Therefore, the ATNOLD carryover to 2011 will be $30,000.

Question 16

Which of the following statements is correct?

Accepted Answer

Explanation: Both statements A and B are correct regarding the adjustments needed for AMT calculations. Statement C is incorrect because the AMT adjustment is not based on the excess of itemized deductions over the standard deduction.

Question 17

Which of the following can produce an AMT preference rather than an AMT adjustment?

Accepted Answer

Percentage depletion is the only choice that can produce an AMT preference rather than an AMT adjustment.

Question 18

Celia and Amos,who are married filing jointly,have one dependent and do not itemize deductions.They have taxable income of $82,000 and tax preferences of $53,000 in 2010.What is their AMT base for 2010?

Accepted Answer

The AMT base is calculated by subtracting the AMT exemptions from the AMT adjusted gross income. In 2010, the AMT exemption for married filing jointly taxpayers was $72,450. Therefore, their AMT adjusted gross income would be $82,000 + $53,000 = $135,000. Their AMT base would be $135,000 - $72,450 = $62,550. However, the AMT base cannot be less than the taxpayer's regular tax liability, so their AMT base would be $82,000. Thus, the correct answer is (C) $88,238.

Question 19

Kevin's AGI is $285,000.He contributed $150,000 in cash to a public charity.What is Kevin's charitable contribution deduction for AMT purposes?

Accepted Answer

For AMT purposes, the charitable contribution deduction is limited to 50% of the AGI. Therefore, Kevin's deduction is 50% of $285,000, which is $142,500.

Question 20

Tad is a vice-president of Ruby Corporation.In 2010,he acquired 1,000 shares of Ruby Corporation stock under the corporation's incentive stock option (ISO)plan for an option price of $43 per share.At the date of exercise in 2010,the fair market value of the stock was $65 per share.The stock became freely transferable in 2011.Tad sold the 1,000 shares for $69 per share in 2012.Which of the following statements is incorrect?

Accepted Answer

The answer of Tad is a vice-president of Ruby Corporation.In...

Quiz 15: Alternative Minimum Tax

Mitch,who is single and has no dependents,had AGI of $100,000 in 2010.His potential itemized deductions were as follows: What is the amount of Mitch's AMT adjustment for itemized deductions for 2010?