Exam 12: Alternative Minimum Tax

Elmer exercises an incentive stock option (ISO) in March for $6,000 (fair market value of the stock on the exercise date is $7,600).If Elmer sells the stock in November of the same tax year for $8,000, he reports a $1,600 AMT adjustment for the year.

Prior to the effect of tax credits, Eunice's regular income tax liability is $325,000 and her tentative minimum tax is $312,000.Eunice has general business credits available of $20,000.Calculate Eunice's tax liability after tax credits.

Tamara operates a natural gas sole proprietorship that incurred $68,000 of intangible drilling costs (IDC) in the current year.Her sole proprietorship's net natural gas income for the year is $72,000. What is the sole proprietorship's current year IDC preference?

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.

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.

AMT adjustments can be positive or negative whereas AMT preferences always are positive.

For regular income tax purposes, Yolanda, who is single, is in the 32% tax bracket.Her AMT base is $420,000.Her tentative AMT is:

Use the following selected data to work backward and calculate Devon's taxable income.Devon itemizes deductions. Tax preferences \ 45,000 Positive AMT adjustments 52,000 Negative AMT adjustments 15,000 AMTI 290,000

Melinda is in the 35% marginal regular tax bracket.She reports a net capital gain of $150,000 on the sale of land which is eligible for the lower tax on net capital gain in calculating the regular income tax.Discuss the tax rate that applies to the $150,000 net capital gain in calculating the tentative minimum tax (TMT) for Melinda.

In calculating her taxable income, Rhonda, who is age 45, claims the following itemized deductions. State income taxes \2 ,500 Property taxes 3,000 Home mortgage interest on principal residence 5,000 Charitable contributions Total itemized deductions for regular income tax . Calculate Rhonda's AMT adjustment for itemized deductions.

Each of A, B, and C is each single, reports wage income of $435,000, and takes the standard deduction.The following additional information is provided about each taxpayer. A: Resides in New York and has $145,000 interest income from Treasury bonds.B: Resides in Nevada and has $145,000 capital gain from the sale of stock. C: Resides in Florida and has $145,000 interest income from private-activity municipal bonds. All else being equal and taking into consideration the principles underlying the AMT, which of these taxpayers has the highest likelihood of being subject to the AMT in the current tax year?

The phaseout of the AMT exemption amount for a taxpayer filing as a head of household both begins and ends at a higher income level than the phaseout for a single taxpayer.

Interest income on private activity bonds issued in 2015 reduced by expenses incurred in carrying the bonds is a preference item that is included in computing AMTI.

In the current tax year, Ben exercised an incentive stock option (ISO), acquiring stock with a fair market value of $190,000 for $170,000.As a result, 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).

Since most tax preferences are merely timing differences, they eventually reverse and net to zero.

Prior to consideration of tax credits, Clarence's regular income tax liability is $200,000 and his tentative minimum tax (TMT) is $180,000.Clarence holds nonrefundable business tax credits of $35,000.His tax liability for the year is $165,000.

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.This increases his AMT adjustment associated with long-term contracts for the current year.

What itemized deductions are allowed for both regular income tax purposes and for AMT purposes?

Beulah, who is single and itemizes deductions, provides you with the following information from her financial records for 2019.Compute Beulah's AMTI. Regular income tax liability \ 104,694 AMT positive adiustments 33,000 AMT preferences 75,000 Taxable income 370,000

The AMT credit is created for any AMT that results from timing differences, but it is not created by any AMT that results from the adjustment for itemized deductions or exclusion preferences.