Exam 15: Alternative Minimum Tax

The required adjustment for AMT purposes for pollution control facilities placed in service in 2015 is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.

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

In deciding to enact the alternative minimum tax,Congress was concerned about the inequity that resulted when taxpayers with substantial economic incomes could avoid paying regular income tax.

Business tax credits reduce the AMT and the regular income tax in the same way.

Prior to the effect of tax credits,Clarence's regular income tax liability is $200,000 and his tentative AMT is $180,000.Clarence has nonrefundable business tax credits of $35,000.His tax liability is $165,000.

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

Assuming no phaseout,the AMT exemption amount for a married taxpayer filing separately for 2015 is more than the AMT exemption amount for C corporations.

After personal property is fully depreciated for both regular income tax purposes and AMT purposes,the positive and negative adjustments that have been made for AMT purposes will net to zero.

Paul incurred circulation expenditures of $180,000 in 2015 and deducted that amount for regular income tax purposes.Paul has a $60,000 negative AMT adjustment for 2016,2017,and for 2018.

Keosha acquires 10-year personal property to use in her business in 2015 and takes the maximum cost recovery deduction for regular income tax purposes.As a result of this,Keosha will have a positive AMT adjustment in 2015.

If Abby's alternative minimum taxable income exceeds her regular taxable income,she will have an alternative minimum tax.

If the AMT base is greater than $185,400,the AMT rate for an individual taxpayer is the same as the AMT rate for a C corporation.

The net capital gain included in an individual taxpayer's AMT base is eligible for the beneficial alternative tax rate on net capital gain.This favorable alternative rate applies both in calculating the regular income tax and the AMT.

Unless circulation expenditures are amortized over a three-year period for regular income tax purposes,there will be an AMT adjustment.

Joel placed real property in service in 2015 that cost $900,000 and used MACRS depreciation for regular income tax purposes.He is required to make a positive adjustment for AMT purposes in 2015 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Negative AMT adjustments for the current year caused by timing differences are offset by the positive AMT adjustments in prior tax years also caused by timing differences.

A taxpayer who expenses circulation expenditures in the year incurred for regular income tax purposes will have a positive AMT adjustment in the following year.

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

Madge's tentative minimum tax TMT is $112,000.Her regular income tax liability is $99,000.Madge's AMT is $13,000.

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 it does for a single taxpayer.