Determine the exemption: base rate - reduction = exception
What are the 5 timing difference adjustments to determine AMTI? What makes timing differences unique?
P - A - N - I - C
Passive activity losses
Accelerated depreciation (post 1986 purchase)
Net operating loss of the individual taxpayer
Installment income of a dealer
Contracts (must use percentage of completion)
Timing differences may require either add back or subtract from regular taxable income to determine AMTI
What are the 4 permanent difference adjustments to determine AMTI? What makes permanent differences unique?
T - I - M - E
Tax deductions (taxable refunds used in itemized deductions, investment interest)
Interest deductions on home equity loans not used to buy, build, or improve the home
Miscellaneous deductions
Exemptions
Permanent differences are unique b/c
++ are always ADDED BACK to regular taxable income to determine AMTI
++ cannot be carried forward as part of the AMT credit
What are the 3 preference items to determine AMTI? What makes these unique?
P - P - P
Private activity bond interest
Percentage depletion deduction (excess over adjusted basis of property)
Pre-1987 accelerated depreciation
These items are always add backs to regular taxable income to determine AMTI
Which of the following are Adjustments vs Preferences: (a) passive activity losses, (b) private bond activity tax-exempt interest, (c) Home equity interest, (d) personal and standard deductions
(a) Adjustment
(b) Preference
(c) Adjustment
(d) Adjustment
Which of the following are Adjustments vs Preferences: (a) percentage depletion, (b) state & local income or sales tax, (c) section 179 expense, (d) real property using accelerated depreciation
(a) Preference
(b) Adjustment
(c) Neither – no adjustment is needed
(d) Adjustment
Which of the following are Adjustments vs Preferences: (a) passive activity losses, (b) completed contract method, (c) Pre-1987 accelerated depreciation, (d) installment method sales
(a) Adjustment
(b) Adjustment
(c) Preference
(d) Adjustment
True / False: A preference adjustment must be made for all tax-exempt interest received.
False
Only tax-exempt interest from private bond activity
Which tax credits used to reduce regular income tax due can also be used to reduce AMT?
ALL PERSONAL (non-refundable) TAX CREDITS
Foreign tax credit
Child and dependent care credit
Adoption credit
Child tax credit
Contributions to retirement plans credit
Residential energy credit
What two common taxes are deemed Other Taxes?
Self-employment tax
Additional MCare tax on wages >$200,000 S / $250,000 MFJ / $125,000 MFS
Which tax do you pay, the Tentative AMT or the Regular Tax?
Whichever is greater
A child earns $3000 in unearned income. Assume the child’s standard deduction is $950. How much is taxable at the parent’s rate?
$3,000 – standard deduction = $2,100
Amount taxed at child’s rate = $950 (the same amt as the deduction)
Amt taxed at parent’s rate: $3,000 – 950 (std deduct) – 950 (child’s rate) = $1,100
What is the AMT tax rate?
All taxpayers except married filing separately: 26% on the first $187,800 of the AMTI tax base and 28% on all amounts above that.
What is the formula to determine the AMT?
Regular Taxable Income
+/- Adjustments
+ Preferences
AMTI
- AMT Exemption
AMT Base
x AMT Tax Rate
Tentative AMT Tax
Less Credits
Tentative AMT
- Regular Income Tax
AMT
How is an AMT tax credit used? How long is the carryback or carryforward?
In a year when no AMT tax is due, the previous AMT paid (only using timing difference adjustments, NOT permanent adjustments or preference items) can be used to reduce regular income taxes due.
The carryforward is forever. No carryback.
What is the difference in depreciation used for regular tax purposes vs AMTI?
Real Property: Regular uses MACRS. AMTI uses straight-line over 40 years.
