Exam 12: Alternative Minimum Tax

Which of the following statements concerning capital gains and losses and the AMT is correct?

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.

In 2019, Glenn recorded a $108,000 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?

If a taxpayer elects to capitalize and to amortize intangible drilling costs over a three-year period for regular income tax purposes, there is no adjustment or preference for AMT purposes.

Cher sold undeveloped land that originally cost $150,000 for $225,000.A positive AMT adjustment of $75,000 is required as a result of the sale.

Prior to the effect of the tax credits, Justin's regular income tax liability is $200,000, and his tentative minimum tax is $195,000.Justin reports the following credits. Child tax credit \1 ,000 Adoption expenses credit 5,000 Calculate Justin's tax liability after credits.

How can interest on a private activity bond result in both an AMT adjustment that decreases AMTI and an AMT preference that increases AMTI?

In May 2015, Swallow, Inc., issues options to Karrie, a corporate officer, to purchase 100 shares of Swallow stock under an ISO plan.At the date the stock options are issued, the fair market value of the stock is $1,000 per share and the option price is $1,200 per share.The stock becomes freely transferable in 2016.Karrie exercised the options in November 2015 when the stock was selling for $1,500 per share.She sold the stock in December 2019 for $1,800 per share. a.Determine the amount of the AMT adjustment for 2015. b.Determine the amount of the AMT adjustment for 2016. c.Determine Karrie's recognized gain for regular income tax purposes and for AMT purposes on the sale of the stock. d.Determine the amount of the AMT adjustment for 2019.

The AMT adjustment for mining exploration and development costs can be avoided if the taxpayer elects to deduct 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.

Tad and Audria, who are married filing a joint return, have AMTI of $1,256,000 for 2019.Calculate their AMT exemption.

Darin, who is age 30, records itemized deductions in calculating taxable income as follows. Medical expenses [\ 45,000-10\%(\ 300,000)] \ 15,000 Mortgage interest on personal residence 17,000 State income and real property taxes 10,000 Casualty loss in Federally declared disaster area [\ 34,000 (after 4,000 \ 100 floor) (10\%\times\ 300,000)] Charitable contributions 23,500 Gambling losses \ \ 8,200 limited to gambling income of \ 5,000) Itemized deductions a.Calculate Darin's itemized deductions for AMT purposes using the direct method. b.Calculate Darin's itemized deductions for AMT purposes using the indirect method.

Interest on a home equity loan that is not used to acquire or improve the taxpayer's principal residence cannot be deducted for AMT purposes.

Nell records a personal casualty loss deduction of $14,500 for regular income tax purposes.The loss was the result of a Federally declared disaster.The actual loss was $26,600, but it was reduced by $100 and by $12,000 (10% × $120,000 AGI) for regular tax purposes.For AMT purposes, the casualty loss deduction also is $14,500.

The required adjustment for AMT purposes for pollution control facilities placed in service this year is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000) in 2019 (the stock was acquired in 2012).In calculating gross income for regular income tax purposes, he excludes all of his realized gain of $20,000.The $20,000 exclusion is a preference in calculating Jackson's AMTI.

Why is there no AMT adjustment for charitable contributions?

Abigail, who is single, reported taxable income of $315,000 for 2019.She incurred positive AMT adjustments of $30,000 and tax preference items of $50,000.Abigail itemizes deductions. a.Compute Abigail's AMTI. b.Compute Abigail's tentative minimum tax (TMT).

The AMTI calculated using the indirect method will produce a different AMTI amount than that calculated using the direct method.

Akeem, who does not itemize, incurred a net operating loss (NOL) of $50,000 in 2018.His deductions in 2018 included AMT tax preference items of $20,000, and he had no AMT adjustments.What is Akeem's alternative tax NOL deduction (ATNOLD) carryover to 2019?

The recognized gain for regular income tax purposes and the recognized gain for AMT purposes on the sale of stock acquired with an incentive stock option (ISO) are always the same because the adjusted basis is the same.