AMT

Question 1

What is AMT?

Answer 1

• Separate income tax system imposed on all taxpayers
• They will pay the HIGHER of the:
  
  • regular tax income liablity OR
  • AMT liability
• Difference between AMT and regular tax is known as the ALTERNATIVE MINIMUM TAX

Question 2

How to calculate AMT

Answer 2

1. Start with taxable income (regular tax calculation)
2. Then, +/- preference items
3. Then, +/- adjustments
4. This equals ALTERNATIVE MINIMUM TAXABLE INCOME (AMTI)
5. • AMT exemption
6. EQUALS TENTATIVE MINIMUM TAXABLE INCOME
7. x tax rates
8. EQUALS AMT

Question 3

What are the preference items?

Answer 3

• Remember that this is deductions that were part of regular taxable income… but now you need to add these back to calculate AMT
• Remember DEEP
  
  • Excess Depletion (deductions that exceed adjusted basis of property)
  • Excess intangible drilling/development costs
    
    • Must be AMORITZED over 10 years under AMT rules rather than EXPENSED under regular tax rules
  • Excess Accelerated Depreciation
    
    • Allows for ACRS (150%)
    • Happens when MACRS (200%) is greater than ACRS
  • Private Activity Bond Interest
    
    • Municipal bonds

Question 4

What are the AMT Adjustments?

Answer 4

• Standard deduction, IF CLAIMED
• State/local taxes deduced IF ITEMIZED DEDUCTIONS WERE CLAIMED
• Home mortgage interest on mortgage debt USED FOR PURPOSES UNRELATED TO PURCHASE, CONSTRUCTION, IMPROVEMENT OF PROPERTY SECURING DEBT
• ISO bargain element AT TIME OF EXERCISE (difference between FMV and strike price)

Also… able to SUBTRACT FROM TAXABLE INCOME:

• Any state/local tax REFUND that is INCLUDED IN REGULAR TAXABLE INCOME

Question 5

AMT paid

Answer 5

• Due to any of these items:
  
  • ISOs
  • Depreciation
  • Qualified EV credits
• Taxpayers will have a prior-year minimum tax credit that they can use to reduce their ordinary tax liablity in a year when they DO NOT OWE AMT
• Carries over to future tax periods UNTIL IT IS USED