Exam 12: Alternative Minimum Tax

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

In 2005,Collies exercised an incentive stock option (ISO),acquiring 150 shares of stock at an option price of $75 per share (fair market value at the date of exercise was $130 per share).In 2014,the rights in the stock become freely transferable (fair market value is still $130 per share). Which of the following statements is incorrect?

The AMT exemption for a C corporation is $50,000 reduced by 25% of the amount by which AMTI exceeds $150,000.

Arlene,who is single,has taxable income for 2014 of $112,000.Calculate her alternative minimum tax,if any,given the following additional information. AMT adjustments Positive \ 22,000 Negative (25,000) Tax preferences 46,000

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

Assuming no phaseout,the AMT exemption amount for a married taxpayer filing separately for 2014 is more than the AMT exemption amount for C corporations.

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000)in 2013.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 tax preference in calculating Jackson's AMTI.

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

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.

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

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.

How can interest on a private activity bond issued in 2008 result in both an AMT adjustment that decreases AMTI and an AMT preference that increases AMTI?

What is the relationship between taxable income and AMTI?

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.

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.

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.

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

Interest income on private activity bonds issued before 2009 and after 2010,reduced by expenses incurred in carrying the bonds,is a tax preference item that is included in computing AMTI.

Ashly is able to reduce her regular income tax liability from $47,000 to $43,500 as the result of the alternative tax on net capital gain.Ashly's tentative AMT is $51,000.

The required adjustment for AMT purposes for pollution control facilities placed in service in 2014 is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.