Exam 15: Alternative Minimum Tax

Correct Answer:

Verified

d. For regular income tax purposes, Karrie does not have income upon the exercise of the ISO in November 2012. However, the $30,000 excess of the fair market value of the stock over the exercise price ($150,000 - $120,000 = $30,000) is a positive adjustment for AMT purposes in the year the stock becomes freely transferable (2013). Therefore, there is no AMT adjustment in 2012.
e. A positive AMT adjustment of $30,000 ($150,000 - $120,000) occurs in 2013 when the stock becomes freely transferable.
c.
$\begin{array}{lll}&\text { Regular } \\&\text { Income Tax }& \text { AMT }\\\text { Amount realized } & \$ 180,000 & \$ 180,000 \\\text { Adjusted basis } & \underline{(120,000)} & \underline{(150,000} \\\text { Realized and recognized gain } & \$ 60,000 & \$ 30,000\end{array}$ d. The AMT adjustment in 2014 is the excess of the recognized gain for regular income tax purposes over the recognized gain for AMT purposes ($60,000 - $30,000 = $30,000). The adjustment is a negative adjustment.

Correct Answer:

Verified

Cindy's adjustments for itemized deductions are as follows:
$\begin{array}{lr}\text { Medical expenses (Note 1) } & \$ 1,250 \\\text { State income taxes } & 2,500 \\\text { Real estate taxes } & 4,000\\\text { Unreimbursed employee expenses (Note 2) } & 1,600 \\\text { Mortgage interest (Note 3) } &-0-\\\text { Total } & \$ 9,350\\\text { Notes }\end{array}$ 1() Medical expenses:
For income tax [$10,000 - (7.5% × $50,000 AGI)] $6,250
For AMT [$10,000 - (10% × $50,000 AGI)] (5,000)
Positive adjustment $1,250
2() Unreimbursed employee expenses: $2,600 - (2% ×
$50,000 AGI) _$1,600
3() The mortgage interest of $5,500 is the same (i.e., qualified housing and residence interest) in this case for AMT purposes and regular income tax purposes.