Chapter 2 - Individual Taxation and Other taxes (AMT) and Other Items Flashcards
(41 cards)
Alternative Minimum Tax (AMT)
AMT is a tax designed to ensure that taxpayers who take a large number of tax preference deductions pay a minimum amount of tax on their income.
AMT is the excess of the tentative AMT over the regular tax.
AMT and AMTI formula and tax rate
AMT is mandatory if it exceeds the regular tax.
Taxable income \+/- certain adjustments \+ tax preferences - exemption allowance = AMTI (AMT tax base/taxable excess) x tax rate ( 26% first $184,500 and 28% on anything over) = Tentative AMT tax - = Tentative minimum tax - = AMT Tax (the greater of AMT or regular tax is the total tax liability).
AMTI in excess of $185,400 the tax rate on the excess is 28%
What are the exemption amounts for AMT?
The exemption amount is phased out by 25 cents per dollar of AMTI above $158,900 for MFJ, $119,200 for single, $79,450 MFS. exemption allowance: $83,400 MFJ LESS 25% (AMTI-\$\$158,900) $53,600 Single LESS 25% (AMTI-$119,200) $41,700 MFS LESS 25% (AMTI-$79,450)
The exemption can never be less than 0.
AMTI
-
= excess over threshold
x 25%
= reduction to exemption amount
Exemption - = AMT Exemption allowable
Adjustments for AMTI calculations
May increase or decrease AMT because the tax treatment of the item is different for AMT purposes than regular tax purposes.
Some adjustments include:
Items 1-5 are timing differences (temporary differences) and may increase or decrease AMTI based on the timing:
1) Passive activity losses
2) Accelerated depreciation
3) Net operating loss of the individual taxpayer
4) installment income of a dealer
5) contracts - percentage completion versus completed contract method
Items 6-10 are items that may be included in deductions for regular tax purposes, but not for AMT purposes and will only increase AMTI (permanent differences):
6) Tax deductions - (permanent)
7) Interest deductions on some home equity loans - (permanent)
8) Medical deductions (limited to excess over 10% AGI; adjustment for taxpayers age 65 and over) - (permanent)
9) Miscellaneous deductions not allowed - (permanent)
10) Exemptions (personal) and standard deduction - (permanent)
What are some tax preference items for AMTI calculations?
Tax preference items are always add backs (+).
These items will result in more income or less deductions being recognized for AMT vs. Regular tax. Theses include:
1) Private activity bond interest income (on certain bonds) - (permanent)
2) percentage depletion, the excess over adjusted basis of property - (permanent)
3) Pre-1987 accelerated depreciation
Credits for prior year minimum tax (AMT Credits)/ What credits are allowed against AMT?
- AMT paid in a certain year may be carried over as a credit to subsequent taxable years. It may only reduce regular tax, not future AMT.
- This carry forward of the credit is forever.
Some credits include:
1) Foreign Tax credit
2) Adoption credit
3) Child tax credit
4) Contributions to retirements plans credit
5) Earned income credit
6) Small business health care tax credit
- AMT created by permanent differences cannot be carried forward as a credit. Therefore, if AMT is paid because of these items, it is never recovered.
AMTI calculation:
regular taxable income
+/- Adjustments
- (Passive activity losses are added back or recalculated)
- (Accelerated depreciation adjustment - on real property it is the difference between reg tax depreciation and straight line using a 40 year life and for personal property it is the difference between reg tax depreciation and 150% declining balance with switch to straight line - if declining balance used for reg tax then no AMT adjustment for depreciation)
- Net operating loss must be recomputed
- installment method may not be used by dealer for property sales
- Long term contracts ( difference between % completion and completed contract method or any other method of accounting is an adjustment)
- Itemized deductions (adjustments that always add to regular taxable income) include:
- taxes reduced by taxable refunds are added back (if refund meets tax benefit rules)
- Mortgage interest not used to build/improve home is added back.
- investment interest must be recalculated
- Medical expenses must exceed 10% AGI (65 and over) - no adjustment needed for taxpayers under 65.
- Miscellaneous deductions subject to the 2% floor are not allowed (are added back)
- Exemptions - personal and standard may not be claimed (are added back)
Other AMT Adjustments:
- incentive stock options
- recalculate gain or loss on sale of depreciable assets
- pollution control facilities
- mining exploration and development costs
- circulation expenses
- research and experimental expenditures
- passive tax shelter farm activities
Tax preference items (always added back) :
- Private activity bond tax exempt interest
- Pre-1987 accelerated depreciation on real and leased personal property
- percentage depletion deduction (excess over adjusted basis)
Subtract AMT credits to reduce AMT Some credits include: 1) Foreign Tax credit 2) Adoption credit 3) Child tax credit 4) Contributions to retirements plans credit 5) Earned income credit 6) Small business health care tax credit
Taxpayers can reduce their AMT by the full amount of their nonrefundable personal tax credits
- Any amounts of medicare tax withheld by the employer in excess of $250,000 MFJ, $125,000 MFS, $200,000 for other taxpayers can be claimed as a credit on the taxpayers income tax return
- Tax penalty for individuals not covered by health insurance
- the tax is the lesser of $325 per person or 1% of family income with max income of $975
- children assessed at 50% of min penalty
- no penalty for a gap in coverage of 3 months or less
- certain low income taxpayers are exempt
- penalty is prorated by month
What is the statute of limitations for an assessment?
Period during which the government can assess an additional tax
Generally three years later of:
1) the due date of the return
2) date the return is filed
25% understatement of gross income:
six years from the later of:
1) the due date of the return
2) date the return is filed
Reopen closed tax years if taxpayer finds a deduction in an open tax year that was erroneously taken in a closed tax year, IRS may disallow the deduction in the closed tax year also
Fraud and False returns have no statute of limitations
What is the statute of limitations for a refund?
Period which a taxpayer can claim and receive a refund.
The later of:
1) Three years from the original due date of the return OR
2) Three years from the date the return was filed OR
3) two years form the time the tax was paid (if not when the return was filed)
For bad debts and worthless securities:
7 years from the later of:
1) the due date of the return
2) date the return is filed
Tax (pre) payements
A taxpayer typically makes prepayements of tax during the year.
These payment reduce the amount shown as total tax on the reutnr and reuslt in the calculation of tax due to the IRS or refund due to the taxpayer
Payments include:
1) taxed withheld from paychecks
2) estimated taxes paid (quarterly or applied from another year)
3) excess social security tax withheld (from 2 or more employers)
Who must make estimated payments (quarterly tax payments)?
Taxpayers with:
1) $1,000 or more tax liability (excess of tax liability over withholding)
and
The taxpayer’s withholding is less than the lesser of:
1) 90% of current years tax, OR
2) 100% of last years tax, even if 0 tax liability in prior year [110% is used if the taxpayers AGI > $150,000 ($75,000 MFS)]
Failure to pay estimated taxes
Results in an assessed penalty.
There is no penalty if the balance of tax due at filing is under $1,000 .
IRS may waive penalty if failure to pay was due to casualty, disaster, illness or death of the taxpayer.
Withholding tax treated as estimated payments
If estimated payments have been insufficient to avoid a penalty, a taxpayer can increase withholding from wages before year end and the withholding will be considered to have been paid evenly throughout the period.
Don Mills, a single taxpayer, had $70,000 in taxable income before personal exemptions in the current year. Mills had no tax preferences. His itemized deductions were as follows:
State and local income taxes - $ 5,000
Home mortgage interest on loan to acquire residence - $6,000
Miscellaneous deductions that exceed 2% of adjusted gross income - $2,000
What amount did Mills report as alternative minimum taxable income before the AMT exemption?
a.$75,000
b.$83,000
c.$77,000
d.$72,000
$77,000.
Explanation:
Choice “c” is correct. Mills’ alternative minimum taxable income starts with his taxable income ($70,000). This is increased by state and local taxes paid ($5,000) and miscellaneous deductions that exceed 2% of adjusted gross income ($2,000) for a total of $77,000. The home mortgage interest on a loan to acquire the residence ($6,000) does not increase alternative minimum taxable income.
Choice “d” is incorrect. State and local income taxes must be added back to Mills’ taxable income in calculating alternative minimum taxable income.
Choice “a” is incorrect. Miscellaneous deductions that exceed 2% of AGI must be added back to Mills’ taxable income in calculating alternative minimum taxable income.
Choice “b” is incorrect. Home mortgage interest is not added back to Mills’ taxable income to calculate alternative minimum taxable income.
Alternative minimum tax preferences include:
Tax exempt Charitable contributions of
interest from private appreciated capital
activity bonds gain property
a. Yes Yes
b. No No
c. Yes No
d. No Yes
Yes, No.
Explanation:
Choice “c” is correct. Tax exempt interest from private activity bonds (generally) and accelerated depletion, depreciation, or amortization are alternative minimum tax preference items. Charitable contributions of appreciated capital gain property are not alternative minimum tax preferences.
The credit for prior year alternative minimum tax liability may be carried:
a. Forward indefinitely.
b. Back to the 3 preceding years or carried forward for a maximum of 5 years.
c. Back to the 3 preceding years.
d. Forward for a maximum of 5 years.
Forward indefinitely.
Explanation:
Choice “a” is correct. Alternative minimum tax (AMT) paid can be claimed as a credit against other years if the tax was paid on items that increased AMT that year but will reverse in later years. The concept is the same as deferred taxes for financial accounting purposes. The credit is carried forward indefinitely.
The alternative minimum tax (AMT) is computed as the:
a. Excess of the regular tax over the tentative AMT.
b. The tentative AMT plus the regular tax.
c. Lesser of the tentative AMT or the regular tax.
d. Excess of the tentative AMT over the regular tax.
Excess of the tentative AMT over the regular tax.
Explanation:
Choice “d” is correct. The alternative minimum tax (AMT) is computed as the excess of tentative AMT over the regular tax.
Choice “a” is incorrect. The alternative minimum tax (AMT) is the excess of the tentative AMT over the regular tax, not the other way around.
Choice “b” is incorrect. The alternative minimum tax (AMT) is the excess of the tentative AMT over the regular tax, not the sum of the tentative AMT plus the regular tax.
Choice “c” is incorrect. The alternative minimum tax (AMT) is the excess of the tentative AMT over the regular tax, not the lesser of AMT or regular tax.
Robert had current-year adjusted gross income of $100,000 and potential itemized deductions as follows:
Medical expenses (before percentage limitations) - $12,000
State income taxes - $4,000
Real estate taxes - $3,500
Qualified housing and residence mortgage interest - $10,000
Home equity mortgage interest (used to consolidate personal debts) - $4,500
Charitable contributions (cash) - $5,000
What are Robert’s itemized deductions for alternative minimum tax?
a.$25,500
b.$19,500
c.$17,000
d.$21,500
$17,000.
Explanation:
Choice “c” is correct. Robert’s itemized deductions for alternative minimum tax purposes are calculated as follows:
Medical expenses (exceeding 10% of AGI) - $2,000
State income taxes (not allowed) −
Real estate taxes (not allowed) −
Qualified housing and residence interest - $10,000
Home equity mortgage interest (not used to buy, build, or improve the home-not allowed) −
Charitable contributions (no difference) 5,000
Alternative Minimum Itemized deductions = $ 17,000
Choices “b”, “d”, and “a” are incorrect, per the above calculation.
Farr, an unmarried taxpayer, had $70,000 of adjusted gross income and the following deductions for regular income tax purposes:
Home mortgage interest on a loan to acquire a principal residence - $ 11,000
Miscellaneous itemized deductions above the threshold limitation - R2,000
What are Farr’s total allowable itemized deductions for computing alternative minimum taxable income?
a.$2,000
b.$11,000
c.$0
d.$13,000
$11,000.
Explanation:
Choice “b” is correct. Both mortgage interest and miscellaneous itemized deductions are deductible for regular (schedule A) tax purposes. However, miscellaneous itemized deductions are “adjustments” and, therefore, are not allowed as deductions for alternative minimum tax (AMT) purposes.
Choice “c” is incorrect. Mortgage interest is allowed as a deduction for AMT purposes.
Choice “a” is incorrect. Miscellaneous itemized deductions are not allowed for AMT purposes
Choice “d” is incorrect. The $2,000 miscellaneous itemized deductions are an add back for AMT purposes.
Which of the following is not an adjustment or preference to arrive at alternative minimum taxable income?
a. Passive activity losses.
b. Individual taxpayer net operating losses.
c. Deductible contributions to individual retirement accounts.
d. Deductible medical expenses.
Deductible contributions to individual retirement accounts.
Explanation:
Choice “c” is correct. Deductible contributions to individual retirement accounts are not an adjustment or preference in calculating a taxpayer’s alternative minimum taxable income. They are an adjustment in calculating adjusted gross income for regular (not alternative minimum) tax purposes.
Choices “b”, “a”, and “d” are incorrect. Adjustments to arrive at AMTI include individual net operating losses, passive activity losses, and medical expenses (to the extent they do not exceed 10% of AGI).
On their joint tax return, Sam and Joann, who are both over age 65, had adjusted gross income (AGI) of $150,000 and claimed the following itemized deductions:
- Interest of $15,000 on a $100,000 home equity loan to purchase a motor home
- Real estate tax and state income taxes of $18,000
- Unreimbursed medical expenses of $15,000 (prior to AGI limitation)
- Miscellaneous itemized deductions of $5,000 (prior to AGI limitation)
Based on these deductions, what would be the amount of AMT add-back adjustment in computing alternative minimum taxable income?
a.$35,000
b.$23,750
c.$21,750
d.$38,750
$38,750.
Explanation:
Choice “d” is correct. Per the mnemonic “PANIC TIMME,” for purposes of calculating alterative minimum taxable income, the taxpayer must add back, among other things, the following itemized deductions:
Taxes reduced by taxable refunds,
Home mortgage interest when the mortgage loan proceeds were not used to buy, build, or improve the taxpayer’s qualified dwelling (house, condominium, apartment, or mobile home not used on a transient basis),
Medical expenses not exceeding 10% of AGI, and
Miscellaneous deductions subject to the 2% of AGI floor.
The “PANIC TIMME” add-back is as follows:
Taxes $ 18,000
Home mortgage interest not used to buy, build, or improve a qualified dwelling (the motor home is not a qualified dwelling) $ 15,000
Medical expenses in excess of 7.5% AGI but not in excess of 10% of AGI (7.5% AGI is still used for taxpayers age 65 and over) $3,750
Deductible miscellaneous expenses in excess of 2% of AGI
$2,000
Total “PANIC TIMME” add-back $ 38,750
Differences between AMT and Regular tax
1) Limitation on Overall Itemized Deductions
The overall limitation on itemized deductions, is an adjustment for AMT.
2) Miscellaneous Itemized Deductions
For AMT, an individual taxpayer cannot deduct miscellaneous itemized deductions subject to the 2% of AGI floor (as defined in Code Sec. 67(b)). Therefore, an individual taxpayer must add back these deductions in calculating AMTI. The miscellaneous itemized deductions subject to the 2% of AGI floor include (but are not limited to):
- Unreimbursed employee business expenses.
- Tax return preparation fees.
- Expenses paid to collect or produce taxable income or to manage or protect property held to earn taxable income.
- An individual taxpayer reports the AMT adjustment amount for these items
4) State, Local, and Foreign Taxes
No deduction is allowed in calculating AMTI for the taxes listed in Code Secs. 164(a) and 164(b)(5)(A). Therefore, an individual taxpayer must add back deductions for these taxes in calculating AMTI. These taxes include:
- State, local, and foreign income, war profits, and excise taxes.
- State, local, and foreign real property taxes.
- State and local personal property taxes.
- State, local, and foreign taxes paid or accrued in carrying on a trade or business or an activity for the production of income.
- State and local sales taxes deducted in lieu of income taxes.
5) Standard Deduction and Personal Exemptions
The basic and additional standard deduction and the deduction for personal exemptions are not allowed for AMT. Because the calculation of AMTI starts
with adjusted gross income (AGI) for individual taxpayers taking the standard deduction (AGI less itemized deductions for taxpayers who itemize), no entry is necessary on Form 6251 to take into account the adjustments for the standard deduction and the personal exemption.
6) Medical Expenses
- Medical and dental expenses are deductible in calculating AMTI to the extent that they exceed 10% of AGI.
- For 2013 and later years, the deduction will be the same for regular tax and AMT, so no adjustment will generally be necessary. However, in 2013 through 2016, a transitional rule in Code Section 213(f) allows taxpayers 65 years and older to continue deducting medical and dental expenses in excess of 7.5% of AGI for regular tax purposes. However, this rule will not apply in determining the AMT deduction. Therefore, taxpayers affected by Code Section 213(f) will have an AMT adjustment for medical and dental expenses in those years.
7) Interest Expenses:
a) Mortgage interest: The rules for deducting mortgage interest are more restrictive for AMT than for regular tax. If a taxpayer can deduct more mortgage interest for regular tax than for AMT, the difference is an adjustment that the taxpayer adds back in calculating AMTI.
- For the regular tax, individual taxpayers can deduct interest on a mortgage loan that the taxpayer used to purchase a qualified residence (i.e., the taxpayer’s principal residence and one other residence selected by the taxpayer that the taxpayer uses as a personal residence) or refinance an existing loan that was used to purchase a qualified residence, to the extent the refinancing loan does not exceed the original mortgage loan.
- The taxpayer may also deduct interest on a home equity loan or line of credit. For the AMT, an individual may only deduct interest on a mortgage loan used in acquiring, constructing, or substantially improving a principal residence or qualified dwelling.
- Because of the “acquiring, constructing, or substantially improving” rule, and the lack of an AMT provision for deducting home equity interest, interest on a home equity loan or line of credit will not be deductible for AMT if a taxpayer uses the proceeds from the loan or line of credit for purposes unrelated to the home.
- For the regular tax, a qualified residence (in the case of the taxpayer’s principal residence and an elected second residence) includes a house, mobile home, condominium, houseboat, house trailer, and stock held by a tenant-stockholder in a cooperative housing corporation. For AMT, this is also the case for the taxpayer’s principal residence. However, for AMT purposes, the second residence can only be a home, apartment, condominium, or a mobile home not used on a transient basis.
- An individual taxpayer adds back the amount of the adjustment for mortgage interest in calculating AMTI on Form 6251, line 4.
EXAMPLE: T owns a home and a boat that qualifies as a residence for purposes of the regular tax mortgage interest deduction. T has an original mortgage loan used to purchase the home, a home equity line of credit on the home that he has used solely to pay for several vacations, and a loan secured by the boat that he used to purchase the boat. For regular tax purposes, T will be able to deduct the interest on all three of these loans. For AMT purposes, he will only be able to deduct the interest on the original home mortgage loan. T must add back the interest on the home equity line of credit and the boat loan in calculating his AMTI.
b) Investment interest: For regular tax purposes, an individual taxpayer can deduct investment interest to the extent of his or her net investment income. A taxpayer also can deduct investment interest to the extent of net investment income for AMT purposes, but the taxpayer must take AMT adjustment and preference items and the AMT loss disallowances under Code Sec. 58 into account in determining the amount of investment interest expense that is deductible in computing AMTI.
- Investment interest that a taxpayer cannot deduct in the current year due to the net investment income limitation can be carried forward and deducted (subject to the limitation) in the next tax year. The difference between the regular tax deduction for investment interest and the AMT deduction for investment interest is an AMT adjustment that is included on Form 6251, Line 8.
Interest on a mortgage loan that is deductible under the AMT rules for home mortgage interest described above is not investment interest. However, where the taxpayer uses the proceeds of a mortgage loan to purchase investment property, the interest on the loan is deductible investment interest for AMT purposes if it is not deductible under the home mortgage interest rules.
Interest on borrowed funds used to purchase private activity bonds are investment interest for AMT because the interest from private activity bonds is included in AMTI. Likewise, the interest on private activity bonds is included in investment income.
8) Incentive Stock Options
- For regular tax, under Code Section 421, a taxpayer that exercises an incentive stock option is not required to include the difference between the option price and the fair market value of the underlying stock at the time of exercise in income in the year of exercise. For AMT, this difference must be included in income in the year of exercise. Thus, the amount of the difference is an AMT adjustment added back in calculating AMTI on Form 6251, line 14.
NOTE: This adjustment does not apply if the taxpayer sells the stock received in the ISO exercise in the same tax year he or she exercises the ISO.
EXAMPLE: R exercises 100 ISOs in 2015 when the FMV of the stock underlying the options is $10 per share. R pays $5 per share when she exercises the ISOs. R does not recognize any income for regular tax in 2015 due to the exercise of the ISOs. In calculating AMTI, R must add back $500, the difference between the amount when she exercised the ISOs and the FMV of the stock she receives.
For AMT purposes, a taxpayer adds the amount of the adjustment to the basis of the stock.
EXAMPLE: The facts are the same as in the preceding example. R has a regular tax basis of $500 in the stock she receives when she exercises the ISOs, the price she paid to exercise the options. Her AMT basis in the stock is $1000, the price she paid to exercise the options plus the amount of her AMT adjustment.
The difference in basis caused by the ISO adjustment will usually cause an AMT adjustment on the disposition of the stock in the year the stock is sold. The AMT adjustment for the disposition of property is discussed below.
9) Depreciation
- In general, unless a taxpayer elects to use the same method of calculating depreciation for regular tax and AMT on post-1986 assets, depreciation is calculated differently for regular tax and for AMT on those assets. In most cases, the differences in the depreciation rules for the two systems results in a greater depreciation deduction for a particular asset for regular tax in the earlier years of the asset’s recovery period and a lower deduction for regular tax in the later years. The difference between the aggregate amount of depreciation deductions for regular tax and for AMT is an adjustment that is added back or subtracted in the calculation of AMTI on Form 6251, line 18.
NOTE: See the instructions for Form 6251, under the heading “Post-1986 Depreciation” for more information on the specific differences in the calculation of regular tax and AMT depreciation.
For a taxpayer that owns an interest in a partnership or shares in an S corporation, the K-1 the taxpayer receives from the partnership or S corporation frequently includes a passthrough of an AMT depreciation adjustment amount. On a partnership K-1, the adjustment is reported on line 17 (Code A). On an S corporation K-1, the adjustment is reported on line 15 (Code A).
10) Disposition of Property
The gain or loss recognized on the disposition of property may be different for regular tax and AMT because the property the taxpayer disposes of has a different basis for regular tax and AMT. This can occur for a number of reasons, including differences in depreciation deductions taken under the two systems for the property and in the case of stock received through the exercise of an ISO, the difference in basis caused by the ISO AMT adjustment discussed above. Because basis may be higher or lower for regular tax than it is for AMT, this adjustment may be positive or negative. The taxpayer includes the adjustment in calculating AMTI on Form 6251, line 17.
NOTE: It is important to remember that the $3,000 limitation on the deduction of capital losses that applies to individual taxpayers for regular tax also applies for AMT.
11) Alternative Tax Net Operating Losses, Amortization Expenses of Pollution Control Facilities, Circulation Costs, Long-Term Contract Expenses, Mining Costs, Research and Experimental Costs
Except for adjustments passed through from partnerships, LLCs, and S corporations, these are all comparatively rare adjustments for individuals. More detail on these adjustments can be found in the instructions for Form 6251.
Which of the following may not be deducted in the computation of alternative minimum taxable income of an individual?
a. One-half of the self-employment tax deduction. b. Charitable contributions. c. Traditional IRA account contribution. d. Personal exemptions.
Personal exemptions, are add backs and therefore not deductible.
Explanation:
Choice “d” is correct. Alternative minimum tax will add back various deductions to arrive at alternative minimum taxable income. If an item is not added back, then it is allowed to be deducted. Personal exemptions are added back. Therefore, they are not deducted to arrive at alternative minimum taxable income.
Choice “c” is incorrect. Alternative minimum tax will add back various deductions to arrive at alternative minimum taxable income. If an item is not added back, then it is allowed to be deducted. Traditional IRA contributions are not added back. Therefore, they are deducted to arrive at Alternative minimum taxable income.
Choice “a” is incorrect. Alternative minimum tax will add back various deductions to arrive at alternative minimum taxable income. If an item is not added back, then it is allowed to be deducted. One half of the self-employment tax deduction is not added back. Therefore, it is deducted to arrive at alternative minimum taxable income.
Choice “b” is incorrect. Alternative minimum tax will add back various deductions to arrive at alternative minimum taxable income. If an item is not added back, then it is allowed to be deducted. Charitable contributions are not added back. Therefore, they are deducted to arrive at alternative minimum taxable income.
When computing alternative minimum tax, the individual taxpayer may take a deduction for which of the following items?
a. State income taxes.
b. Miscellaneous itemized deductions in excess of 2% of adjusted gross income floor.
c. Personal and dependency exemptions.
d. Casualty losses.
Casualty losses, are not add backs and therefore are deductible.
Explanation:
Choice “d” is correct. Casualty losses are not added back in the alternative minimum tax (AMT) calculation. Therefore, they are allowed as a deduction.
Choice “a” is incorrect. State income taxes are added back in the AMT calculation. Therefore, they are not allowed as a deduction.
Choice “c” is incorrect. Personal and dependency exemptions are added back in the AMT calculation. Therefore, they are not allowed as a deduction.
Choice “b” is incorrect. Miscellaneous itemized deductions in excess of 2% of AGI are added back in the AMT calculation. Therefore, they are not allowed as a deduction.
