CHAPTER 15 ALTERNATIVE MINIMUM TAX

1. Arlene, who is single, has taxable income for 2014 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

2. Caroline and Clint are married, have no dependents, and file a joint return in 2014. Use the following selected data to calculate their Federal income tax liability.

AMTI	$285,000
Regular income tax liability	42,066
AMT tax preferences	90,000

3. Bianca and David have the following for 2014:

Regular income tax before credits $32,000

Tentative AMT 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.

4. Gunter, who is divorced, has the following items for 2014.

Salary Gain on sale of land held nine months (regular income tax basis is $4,000	$60,000
less than AMT basis)	10,000
Traditional IRA contribution	5,000
Alimony paid	9,000
Itemized deductions:
Charitable contributions $3,000
Home mortgage interest on his principal residence 4,000
State income taxes 2,000	9,000
Tax preferences	15,000

Calculate Gunter’s AMTI for 2014.

5. Tad and Audria, who are married filing a joint return, have AMTI of $256,000 for 2014. Calculate their AMT exemption.

ANSWER: Statutory amount $82,100

Less phaseout: 25%($256,000 – $156,500) (24,875)

AMTI exemption $57,225

6. In 2014, Linda incurs circulation expenses of $240,000 which she deducts in calculating taxable income.

a. Calculate Linda’s AMT adjustment for circulation expenses for 2014, 2015, 2016, and 2017.

b. Advise Linda on how she could reduce or eliminate the AMT adjustment in 2014.

7. In June, Della purchases a building for $800,000 to use in her business as an office building. Della uses the depreciation method which will provide her with the greatest deduction for regular income tax purposes.

a. Calculate the AMT adjustment for depreciation in 2014 if Della purchased the building in 2014.

b. Calculate the AMT preference for depreciation in 2014 if Della purchased the building in 1986.

8. Lavender, Inc., incurs research and experimental expenditures of $210,000 in 2014. Determine the amount of the AMT adjustment for 2014 and for 2015 if for regular income tax purposes:

a. Lavender expenses the research and experimental expenses.

b. Lavender capitalizes the research and experimental expenses and elects to amortize them over a 10-year period.

9. In May 2012, Swallow, Inc., issues options to Karrie, a corporate officer, to purchase 100 shares of Swallow stock under an ISO plan. At the date the stock options are issued, the fair market value of the stock is $1,000 per share and the option price is $1,200 per share. The stock becomes freely transferable in 2013. Karrie exercises the options in November 2012 when the stock is selling for $1,500 per share. She sells the stock in December 2014 for $1,800 per share.

a. Determine the amount of the AMT adjustment for 2012.

b. Determine the amount of the AMT adjustment for 2013.

c. Determine Karrie’s recognized gain for regular income tax purposes and for AMT purposes in 2014 on the sale of the stock.

d. Determine the amount of the AMT adjustment for 2014.

10.Frederick sells land and building whose adjusted basis for regular income tax purposes is $345,000 and for AMT purposes is $380,000. The sales proceeds are $850,000. Determine the effect on:

a. Taxable income.

b. AMTI.