Individual Taxes: Alternative Minimum Tax

Question 1

What adjustments are added back to AMT?

Answer 1

Itemized Deductions:
Allowed miscellaneous itemized deductions
State, local, and foreign taxes paid
Certain investment interest expense

Other additions include the following:
Personal exemptions
Standard deduction (if the taxpayer does not itemize)

Question 2

Itemized deductions for AMT purposes are computed the same as for regular tax purposes, with the following exceptions:

Answer 2

1) Property and income taxes (or the optional sales taxes) are not deductible unless they are deductible in computing adjusted gross income. (IRC Section 56(b)(1)(A)(ii))
No deduction is allowed for miscellaneous itemized deductions. (IRC Section 56(b)(1)(A)(i))
2) Medical expenses are deductible only to the extent they exceed 10% of the taxpayer’s adjusted gross income. (IRC Section 56(b)(1)(B))
3) Qualified housing interest, rather than qualified residence interest, is deductible. Qualified housing interest deductible for AMT does not include all home equity debt and has a narrower definition of residence which, for example, excludes boats and recreational vehicles. (IRC Section 56(e))
4) The limit on the deduction for investment interest (net investment income) for AMT purposes equals the sum of the taxpayer’s interest on tax-exempt bonds that is includable in alternative minimum taxable income, net of expenses associated with that interest, plus the taxpayer’s net investment income for regular tax purposes. (IRC Section 56(b)(1)(C))

Question 3

What is a deferral item for AMT? (allowed in future years)

Answer 3

1) Difference of profits between Completed contract and % of Completion contracts
2) Business assets under MACRS

Question 4

Adjustment items for AMT (not allowed in calculating AMT)

Answer 4

Standard Deductions

Question 5

What is excluded from AMT? (will not reverse in future years)

Answer 5

State Income Taxes Refunds

Question 6

What is neither a preference or Adjustment for AMT?

Answer 6

Long term capital gain

Deduction for IRA Contributions

Question 7

The credit for prior-year alternative minimum tax liability

Answer 7

may be carried forward indefinitely. The taxpayer should use IRS Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts

Question 8

What is allowed under AMT?

Answer 8

home mortgage interest claimed as an itemized deduction is only deductible if the loan was used to buy, build, or improve the taxpayer’s home

Question 9

The alternative minimum tax (AMT) is computed

Answer 9

as the excess of the tentative minimum tax over the regular tax