Deck 12: Alternative Minimum Tax

Question 1

The net capital gain included in an individual taxpayer's AMT base is eligible for the beneficial lower tax rate on net capital gain.This favorable alternative rate applies both in calculating the regular income tax and the AMT.

Answer 1

True

Question 2

Unless circulation expenditures are amortized over a three-year period for regular income tax purposes,there will be an AMT adjustment.

Answer 2

True

Question 3

If Abby's alternative minimum taxable income exceeds her regular taxable income,she will incur an alternative minimum tax.

Answer 3

False

Question 4

Prior to the effect of tax credits,Clarence's regular income tax liability is $200,000 and his tentative AMT is $180,000.Clarence holds nonrefundable business tax credits of $35,000.His tax liability is $165,000.

Question 5

If the AMT base is greater than $186,300,the AMT rate for an individual taxpayer is the same as the AMT rate for a C corporation.

Question 6

A taxpayer who expenses circulation expenditures in the year incurred for regular income tax purposes will have a positive AMT adjustment in the following year.

Question 7

Business tax credits reduce the AMT and the regular income tax in the same way.

Question 8

Joel placed real property in service in 2016 that cost $900,000 and used MACRS depreciation for regular income tax purposes.He is required to make a positive adjustment for AMT purposes in 2016 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Question 9

Madge's tentative minimum tax TMT is $112,000.Her regular income tax liability is $99,000.Madge's AMT is $13,000.

Question 10

Assuming no phaseout,the AMT exemption amount for a married taxpayer filing separately for 2016 is more than the AMT exemption amount for C corporations.

Question 11

Paul incurred circulation expenditures of $180,000 in 2016 and deducted that amount for regular income tax purposes.Paul has a $60,000 negative AMT adjustment for each of 2017,2018,and for 2019.

Question 12

In deciding to enact the alternative minimum tax,Congress was concerned about the inequity that resulted when taxpayers with substantial economic incomes could avoid paying regular income tax.

Question 13

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

Question 14

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

Question 15

After personal property is fully depreciated for both regular income tax purposes and AMT purposes,the positive and negative adjustments that have been made for AMT purposes will net to zero.

Question 16

Keosha acquires 10-year personal property to use in her business in 2016 and takes the maximum cost recovery deduction for regular income tax purposes.As a result of this,Keosha will incur a positive AMT adjustment in 2016.

Question 17

Negative AMT adjustments for the current year caused by timing differences are offset by the positive AMT adjustments in prior tax years also caused by timing differences.

Question 18

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.

Question 19

The AMT calculated using the indirect method will produce a different amount than the AMT calculated using the direct method.

Question 20

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

Question 21

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.

Question 22

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.

Question 23

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

Question 24

Elmer exercises an incentive stock option (ISO)in 2016 for $6,000 (fair market value of the stock on the exercise date is $7,600).If Elmer sells the stock later in 2016 for $8,000,the AMT positive adjustment is $1,600 and the AMT negative adjustment is $2,000.

Question 25

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.

Question 26

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

Question 27

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

Question 28

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.

Question 29

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.

Question 30

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

Question 31

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

Question 32

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.

Question 33

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

Question 34

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.

Question 35

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.This increases Evan's AMT adjustment associated with long-term contracts for the current year.

Question 36

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.

Question 37

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

Question 38

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

Question 39

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.

Question 40

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).

Question 41

C corporations are not required to make AMT adjustments for depreciation.

Question 42

Vicki owns and operates a news agency (as a sole proprietorship).During 2016,she incurred expenses of $24,000 to increase circulation of newspapers and magazines that her agency distributes.For regular income tax purposes,she elected to expense the $24,000 in 2016.In addition,Vicki incurred $15,000 in circulation expenditures in 2017 and again elected expense treatment.What AMT adjustments will be required in 2016 and 2017 as a result of the circulation expenditures?

A)$16,000 positive in 2016,$2,000 positive in 2017.
B)$16,000 negative in 2016,$2,000 positive in 2017.
C)$16,000 negative in 2016,$10,000 positive in 2017.
D)$16,000 positive in 2016,$10,000 positive in 2017.
E)None of the above.

Question 43

All of a C corporation's AMT is available for carryover as a minimum tax credit,regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.

Question 44

If the taxpayer elects to capitalize intangible drilling costs and to amortize them over a 3-year period for regular income tax purposes,there is no adjustment or preference for AMT purposes.

Question 45

Beula,who is a head of household and age 40,provides you with the following information from her financial records for 2016.
​
Regular income tax liability
$ 35,776
AMT positive adjustments
33,000
AMT preferences
25,000
Taxable income
170,000
​
Calculate her AMTI for 2016.

A)$0
B)$174,050
C)$228,000
D)$232,050
E)None of the above

Question 46

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000)in 2016 ( The stock was acquired in 2007).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.

Question 47

For regular income tax purposes,Yolanda,who is single,is in the 35% tax bracket.Her AMT base is $220,000.Her tentative AMT is:

A)$57,200.
B)$57,874.
C)$61,600.
D)$77,650.
E)None of the above.

Question 48

Dale owns and operates Dale's Emporium as a sole proprietorship.On January 30,1998,Dale's Emporium acquired a warehouse for $100,000.For regular income tax purposes in 2016,depreciation was deducted under MACRS using a rate of 2.564%.Determine the AMT adjustment for depreciation and indicate whether it is positive or negative.

A)$64 negative adjustment.
B)$64 positive adjustment.
C)No adjustment is required because Dale's Emporium used the Alternative Depreciation System (ADS)to compute depreciation on the property for AMT purposes.
D)No adjustment is required because Dale's Emporium used MACRS to compute the depreciation of the property for regular income tax purposes.

Question 49

For individual taxpayers,the AMT credit is applicable for the AMT that results from timing differences,but it is not available for the AMT that results from the adjustment for itemized deductions or exclusion preferences.

Question 50

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.

Question 51

Ashley can reduce her regular income tax liability from $47,000 to $43,500 as the result of the lower tax rate on net capital gain.Ashley's tentative minimum tax is $51,000.
​

A)Ashley's tax liability is reduced by $3,500 as the result of the lower tax on net capital gain.
B)Ashley's AMT is increased by $3,500 as the result of the lower tax rate on net capital gain.
C)Ashley's tax liability is $43,500.
D)Ashley's tax liability is $47,000.

Question 52

Ashby,who is single and age 30,provides you with the following information from his financial records for 2016.
Regular income tax liability
$ 47,228
AMTI
225,000
Taxable income
195,000
​
Calculate his AMT exemption for 2016.

A)$0
B)$17,000
C)$25,575
D)$53,900

Question 53

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

Question 54

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

Question 55

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

Question 56

After 1993,the corporate AMT no longer applies for small C corporations.

Question 57

Which of the following statements is correct?

A)If the tentative minimum tax is $10,000 and the regular income tax liability is $12,000,the AMT is $2,000.
B)If the tentative minimum tax is $12,000 and the regular income tax liability is $10,000,the AMT is $12,000.
C)If the tentative minimum tax is $10,000 and the regular income tax liability is $12,000,the AMT is a negative $2,000.
D)If the tentative minimum tax is $12,000,and the regular income tax liability is $10,000,the AMT is $2,000.

Question 58

Prior to the effect of tax credits,Eunice's regular income tax liability is $325,000 and her tentative minimum tax is $312,000.Eunice has general business credits available of $20,000.Calculate Eunice's tax liability after tax credits.

A)$0
B)$305,000
C)$312,000
D)$325,000

Question 59

Kay claimed percentage depletion of $119,000 for the current year for regular income tax purposes.Cost depletion would have been $60,000.Her basis in the property was $90,000 at the beginning of the current year.Kay must treat the percentage depletion deducted in excess of cost depletion,or $59,000,as a tax preference in computing AMTI.

Question 60

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

A)$190,000
B)$194,000
C)$195,000
D)$200,000

Question 61

Caroline and Clint are married,have no dependents,and file a joint return in 2016.Use the following selected data to calculate their Federal income tax liability.
​
AMTI
$285,000
Regular income tax liability
42,066
AMT preferences
90,000

Question 62

Celia and Christian,who are married filing jointly,have one dependent and do not itemize deductions.They have taxable income of $192,000 and tax preferences of $53,000 in 2016.What is their AMT base for 2016?

A)$0
B)$213,463
C)$215,850
D)$269,750

Question 63

Mitch,who is single and age 66 and has no dependents,had AGI of $100,000 in 2016.His potential itemized deductions were as follows.
​
Medical expenses (before percentage limitation)
$15,000
State income taxes
3,000
Real estate taxes
7,000
Mortgage (qualified housing and residence)interest
9,000
Cash contributions to various charities
4,000
Unreimbursed employee expenses (before percentage limitation)
4,300
​
What is the amount of Mitch's AMT adjustment for itemized deductions for 2016?

A)$14,800
B)$16,800
C)$19,300
D)$25,800

Question 64

Akeem,who does not itemize,incurred a net operating loss (NOL)of $50,000 in 2015.His deductions in 2015 included AMT tax preference items of $20,000,and he had no AMT adjustments.Assuming the NOL is not carried back,what is Akeem's ATNOLD carryover to 2015?

A)$50,000
B)$30,000
C)$20,000
D)$40,000
E)None of the above

Question 65

Vinny's AGI is $250,000.He contributed $200,000 in cash to the Boy Scouts,a public charity.What is Vinny's charitable contribution deduction for AMT purposes?

A)$0
B)$50,000
C)$75,000
D)$125,000
E)None of the above

Question 66

Tad and Audria,who are married filing a joint return,have AMTI of $256,000 for 2016.Calculate their AMT exemption.

Question 67

Sand Corporation,a calendar year C corporation,reports alternative minimum taxable income of $900,000 for 2016.Sand's tentative minimum tax for 2016 is:

A)$0.
B)$40,000.
C)$180,000.
D)$191,250.
E)None of the above.

Question 68

Omar acquires used 7-year personal property for $100,000 to use in his business in February 2016.Omar does not elect § 179 expensing,but he does take the maximum regular cost recovery deduction.He elects not to take additional first-year depreciation.As a result,Omar incurs a positive AMT adjustment in 2016 of what amount?

A)$0
B)$3,580
C)$10,710
D)$14,290
E)None of the above

Question 69

Mauve,Inc. ,records the following gross receipts in 2014,2015,and 2016.
2014
2015
2016
$4,900,000
$8,700,000
$5,800,000
​
​
​
​
What is Mauve,Inc.'s TMT in each of these three years?
​
2014 2015 2016

A)$0 $0 $0
B)$0 $0 $1,160,000
C)$0 $1,740,000 $1,160,000
D)$980,000 $1,740,000 $1,160,000
E)$0 $1,740,000) $0

Question 70

Use the following data to calculate Jolene's AMTI.Jolene does not itemize deductions.
Taxable income
$190,000
AMT adjustments
Positive
70,000
Negative
(14,000)
AMT preferences
25,000

Question 71

In 2016,Glenn recorded a $108,000 loss on a passive activity.None of the loss is attributable to AMT adjustments or preferences.She has no other passive activities.Which of the following statements is correct?

A)In 2016,Glenn can deduct $108,000 for regular income tax purposes and for AMT purposes.
B)Glenn reports a $108,000 tax preference in 2016 as a result of the passive activity.
C)For regular income tax purposes,none of the passive activity loss is allowed in 2016.
D)In 2016,Glenn reports a positive adjustment of $25,000 as a result of the passive activity loss.
E)None of the above.

Question 72

Bianca and David report the following for 2016.
Regular income tax before credits
$32,000
Tentative minimum tax before credits
45,000
​
a.Calculate Bianca and David's AMT if they qualify for the adoption expense credit of $11,000.
b.Calculate Bianca and David's AMT if they qualify for the adoption expense credit of $13,190.

Question 73

Arlene,who is single,reports taxable income for 2016 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

Question 74

Use the following selected data to calculate Devon's taxable income prior to any personal exemption taken.Devon does not itemize deductions.
Tax preferences
$ 45,000
Positive AMT adjustments
52,000
Negative AMT adjustments
15,000
AMTI
290,000

Question 75

Eula owns a mineral property that had a basis of $23,000 at the beginning of the year.Cost depletion is $19,000.The property qualifies for a 15% depletion rate.Gross income from the property was $200,000 and net income before the percentage depletion deduction was $50,000.What is Eula's tax preference for excess depletion,if she maximized her regular-tax depletion deduction?

A)$15,000
B)$23,000
C)$25,000
D)$2,000

Question 76

In 2016,Linda incurs circulation expenses of $240,000 which she deducts in calculating taxable income.
a.Calculate Linda's AMT adjustment for circulation expenses for 2016,2017,2018,and 2019.
b.Advise Linda on how she could reduce or eliminate the AMT adjustment in 2016.

Question 77

Ted,who is single,owns a personal residence in the city.He also owns a condo near the ocean.He uses the condo as a vacation home.In March 2016,he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile.During 2016,he paid the following amounts of interest.
​
∙
On his personal residence
$15,500
∙
On the condo
6,200
∙
On the home equity loan
4,800
∙
On credit card obligations
1,700
What amount,if any,must Ted recognize as an AMT adjustment in 2016?

A)$0
B)$4,800
C)$6,200
D)$11,000
E)None of the above

Question 78

Robin,who is a head of household and age 42,provides you with the following information from his financial records for 2015.Robert itemizes deductions.
Regular income tax liability
$ 41,527
AMT positive adjustments
30,000
AMT preferences
20,000
Taxable income
181,000
​
Calculate his AMT for 2016.

A)$6,633.
B)$13,544.
C)$41,527.
D)$55,071.

Question 79

Marvin,the vice president of Lavender,Inc. ,exercises stock options for 100 shares of stock in March 2015.The stock options are incentive stock options (ISOs).Their exercise price is $20 and the fair market value on the date of exercise is $28.The options were granted in March 2011 and all restrictions on the free transferability had lapsed by the exercise date.

A)If Marvin sells the stock in December 2016 for $3,000,his AMT adjustment in 2016 is a positive adjustment of $800.
B)If Marvin sells the stock in December 2017 for $3,000,his AMT adjustment in 2017 is $0.
C)If Marvin sells the stock in December 2016 for $3,000,his AMT adjustment in 2016 is a negative adjustment of $800.
D)If Marvin sells the stock in December 2017 for $3,000,his AMT adjustment in 2017 is a negative adjustment of $1,000.
E)None of the above.

Question 80

Wallace owns a construction company that builds both commercial and residential buildings.He contracts to build a residential building for $800,000 for which he is eligible to use the completed contract method of accounting.In the current year for regular income tax purposes,Wallace does not recognize any income on the contract.Under the percentage of completion method,the income recognized under the contract would have been $60,000.Wallace's AMT effect is:

A)$0.
B)$60,000 negative adjustment.
C)$60,000 positive adjustment.
D)$800,000 positive adjustment.