REG 2 Individual Taxation: Other Taxes

Question 1

What is AMT?

Answer 1

The alternative minimum tax is a tax designed to ensure that taxpayers who take a large number of tax-preference deductions pay a minimum tax on their income. The AMT is the excess of the tentative AMT over the regular tax.

Question 2

What is the AMT exemption amount formula?

Answer 2

Alternative minimum taxable income (AMTI)
Less: Threshold 
= Excess
* 25%
= Reduction

Exemption
Less: Reduction
= AMT exemption

Single: Exemption $53,600; AMTI Threshold $119,200
Joint: Exemption $83,400; AMTI Threshold $158,900
Married filing separately: Exemption $41,700; AMTI Threshold $79,450

Question 3

What are adjustments for AMT purposes defined as, and what are the common examples?

Answer 3

As specific items that may increase or decrease AMT because the treatment of the item is different for AMT purposes than regular tax purposes.
Common examples: PANIC TIMME
1. Passive activity losses
2. Accelerated depreciation (post-1986 purchase)
3. Net operating loss of the individual taxpayer
4. Installment income of a dealer
5. Contracts - percentage completion versus completed contract
1 through 5 Increase or Decrease
6. Tax “deductions”
7. Interest deductions on some home “equity loans”
8. medical deductions (limited to excess over 10% AGI; Adjustment for taxpayers age 65 and over)
9. Miscellaneous deductions not allowed
10. Exemptions (personal) and standard deduction

Question 4

What are tax preference items defined as and commonly include?

Answer 4

Are always add-backs. Will result in more income or less deductions being recognized for AMT vs. regular tax.
Common items: PPE
1. Private activity bond interest income (on certain bonds)
2. Percentage depletion the excess over adjusted basis of property
3. Pre-1987 accelerated depreciation

Question 5

Describe the credit for prior year minimum tax (AMT credit).

Answer 5

Credit allowable AMT paid in a taxable year may be carried over as a credit to subsequent taxable years. It may only reduce regular tax, not future AMT. The carryfoward period is forever. Permanent differences (only increase; except pre-1987 accelerated dep.) cannot be carried forward as part of the “credit.” Therefore, if AMT is paid because of these items, it is never recovered.

Question 6

What are AMT credits?

Answer 6

Permitted as a credit to reduce the AMT (not regular tax).
1. Foreign tax credit. *
2. Adoption credit.
3. Child tax credit.
4. Contributions to retirement plans credit.
5. Earned income credit.
Taxpayers can reduce their AMT liability by the full amount of their nonrefundable personal tax credits.