Chapter 14 Flashcards
The Alternative Minimum Tax
AMTI
The AMT is calculated by first determining the taxpayer’s alternative minimum taxable income (AMTI). The calculation of AMTI uses the taxpayer’s regular taxable income as a starting point and then makes adjustments to reflect the impact of tax-preference items, including the elimination or reduction of certain deductions and/or credits and the addition of certain items of income that are excludible for regular tax purposes. The AMTI is reduced by an exemption,
if applicable, to arrive at the AMT base. The AMT base is multiplied by special rates to compute the tax, which is called the tentative minimum tax (TMT). Taxpayers are required to pay the greater of the TMT or their regular income tax.
alternative minimum tax credit against the regular tax
Taxpayers who are subject to the AMT in one or more years may be able to claim a credit against the regular income tax in later tax years when they are not subject to the AMT.
Certain itemized deductions of individuals are permitted to be claimed as deductions in calculating AMTI. These are as follows:
- charitable contributions
- casualty and theft losses (incurred in a federally declared disaster)
- interest on indebtedness used to acquire or improve a qualified residence of the taxpayer
- investment interest not in excess of qualified net investment income
- the deduction for estate taxes attributable to income in respect of a decedent
- medical expenses deductible for regular tax purposes and exceeding 10 percent of AGI (7.5% of AGI for 2017 and 2018; 10% of AGI for 2019 and subsequent years).
There are deductions or exclusions taken for regular tax purposes which are added to regular
taxable income as part of calculating AMTI. The most notable are as follows:
• The standard deduction is not allowable in computing AMTI. If an individual taxpayer uses the standard deduction for regular tax purposes, the amount of the standard deduction is added back to taxable income in calculating AMTI.
• When the actual value of an incentive stock option at the time the option holder’s rights become nonforfeitable exceeds the price paid for the option, the excess must be included in calculating AMTI.
• A portion of certain deductions for depreciation allowable for regular tax purposes
are not allowable for AMT purposes.
• Interest on nongovernmental purpose bonds (i.e., private activity bonds) issued after August 7, 1986
Theft and casualty losses are not tax-preference items for purposes of the AMT.
True
When computing the AMT, the standard deduction must be added back to taxable income by taxpayers who use it for regular tax purposes.
True
Charitable contributions are generally allowable as itemized deductions in determining the AMT.
True
The AMT rate for individual taxpayers is 20 percent.
False
The AMT rates for individual taxpayers are 26 and 28 percent.
Certain interest expenses are deductible in computing AMTI.
True
The AMT rate is the same for both individuals and corporations.
False
The individual rates are 26 and 28 percent, while the corporate rate has been eliminated under the TCJA.
Interest on nongovernmental purpose bonds issued after August 7, 1986, is generally a tax-preference item for purposes of the AMT.
True
Medical expenses of a 68-year-old taxpayer in excess of 7.5 percent of adjusted gross income are allowable in computing the AMT in 2019.
False
In 2019, the AGI limitation for medical expenses for both regular tax and AMT purposes is 10%.
The exemption amount for purposes of calculating the AMT increases at higher income levels.
False
The exemption amount for purposes of calculating the AMT is a flat amount that is gradually phased out (reduced) above specified levels of AMTI.
C corporations may be subject to the AMT as a result of receiving life insurance proceeds.
True
