Exam 15: Alternative Minimum Tax

The sale of business property might result in an AMT adjustment.

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

Elmer exercises an incentive stock option (ISO) in 2015 for $6,000 (fair market value of the stock on the exercise date is $7,600).If Elmer sells the stock later in 2015 for $8,000,the AMT positive adjustment is $1,600 and the AMT negative adjustment is $2,000.

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

Cher sold undeveloped land that originally cost $150,000 for $225,000.There is a positive AMT adjustment of $75,000 associated with the sale of the land.

The amount of the deduction for medical expenses under the regular income tax may be different than for AMT purposes if the taxpayer is at least age 65.

Nell has a personal casualty loss deduction of $14,500 for regular income tax purposes.The deduction would have been $26,600,but it had to be reduced by $100 and by $12,000 (10% × $120,000 AGI).For AMT purposes,the casualty loss deduction also is $14,500.

Benita expensed mining exploration and development costs of $500,000 incurred in the current tax year.She will be required to make negative AMT adjustments for each of the next ten years and a positive AMT adjustment in the current tax year.

Kerri,who had AGI of $120,000,itemized her deductions in the current year.She incurred unreimbursed employee business expenses of $8,500.Kerri must make a positive AMT adjustment of $2,400 in computing AMT.

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.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).

The deduction for personal and dependency exemptions is allowed for regular income tax purposes,but is disallowed for AMT purposes.This results in a positive AMT adjustment.

If a gambling loss itemized deduction is permitted for regular income tax purposes,there will be no AMT adjustment associated with the gambling loss.

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.Unfortunately,this will have the effect of increasing Evan's AMT adjustment associated with long-term contracts for the current year.

The deduction for charitable contributions in calculating the regular income tax can differ from that in calculating the AMT because the percentage limitations (20%,30%,and 50%) may be applied to a different base amount.

Because passive losses are not deductible in computing either taxable income or AMTI,no adjustment for passive losses is required for AMT purposes.

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.

Interest on a home equity loan cannot be deducted for AMT purposes.

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.

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.

AGI is used as the base for application of percentage limitations (i.e. ,20%,30%,50%) that apply to the charitable contribution deduction for regular income tax purposes.Modified AGI is used as the base for application of percentage limitations that apply to the charitable contribution deduction for AMT purposes.