Alternative Minimum Tax

Question 1

Alternative Minimum Tax

Answer 1

Regular Tax

+/- Adjustments (1)

+ Preferences (2)

= AMT Income

- Exemptions (3)

= AMT Base

x Rate

= Tentative Minimum Tax before credits

- Certain Credits (4)

= Tentative Minimum Tax

- Regular Tax Liability

= AMT (if positive)

Question 2

(1) AMT Adjustments

Answer 2

**Can Increase OR Decrease AMT Income

MACRS 3, 5, 7, and 10 year property using 200% declining balance method

• For AMT, use 150% declining-balance over the MACRS life
• No AMT adjustment is required for property that was depreciated using bonus depr

Itemized Deductions:

1. Phase-out does not apply - phase-out is subtracted from taxable income
2. Medical deduction allowed to the extent it exceeds 10% AGI
3. Non tax deductions (add back)
4. 2% Misc Deduction not allowed
5. Home equity interest only allowed to acquire or improve a home
6. Personal exemptions and standard deductions added back
7. Compensation element on the exercise date for an incentive stock option

Question 3

(2) Preferences

Answer 3

**Always Increase AMT Income

Most Common:

1. Real property and leased personalty purchased before 1987, excess of accelerated over straight-line depreciation
2. Tax exempt interest on private activity bonds (less related expenses)

Question 4

(3) Exemptions

Answer 4

Taxpayers are entitled to an AMT exemption of $82,100 if married filing jointly ($52,800 if not married) in 2014.

• Subject to phase-out

Question 5

(4) AMT Credits

Answer 5

The following credits are allowed:

1. Foreign Tax Credit (businesses)
2. Child tax credit
3. Adoption credit
4. American opportunity and lifetime learning credit
5. Low-income saver’s credit
6. Residential energy efficient property credit
7. Nonbusiness energy property credit
8. Credit for elderly and disabled
9. Child and dependent care credit