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I have been doing some of the Wiley Test Bank questions and for one of them I looked at the reference provided and this is what they had. Can anyone explain to me where the 26% and 28% came from? I could be wrong/completely confused but I thought both Becker and the Ninja Notes said to use 20% when calculating AMT?
Alternative Minimum Tax (AMT)
1. The alternative minimum tax for noncorporate taxpayers is computed by applying a two-tiered rate schedule to a taxpayer’s alternative minimum tax base. A 26% rate applies to the first $175,000 of a taxpayer’s alternative minimum taxable income (AMTI) in excess of the exemption amount. A 28% rate applies to AMTI greater than $175,000 ($87,500 for married taxpayers filing separately) above the exemption amount. This tax applies to the extent that a taxpayer’s AMT exceeds the amount of regular tax.
2. A taxpayer’s AMT is generally the amount by which the applicable percentage (26% or 28%) of AMTI as reduced by an exemption amount and reduced by the AMT foreign tax credit exceeds the amount of a taxpayer’s regular tax as reduced by the regular tax foreign tax credit.
3. AMT computation formula:
Regular taxable income
+ (–) Adjustments
+ Tax preferences
= Alternative minimum taxable income
– Exemption amount
= Alternative minimum tax base
× 26% or 28%
= Tentative before foreign tax credit
– AMT foreign tax credit
= Tentative minimum tax
– Regular tax liability (reduced by regular tax foreign tax credit)
= AMT (if positive)
4. Exemption. AMTI is offset by an exemption. However, the AMT exemption amount is phased out at the rate of 25% of AMTI between certain specified levels.
Filing status AMT exemption Phaseout range
Married filing jointly; Surviving Spouse $80,800 $153,900 – $477,100
Single; Head of Household $51,900 $115,400 – $323,000
Married filing separately $40,400 $ 76,950 – $238,550
5. Adjustments. In determining AMTI, taxable income must be computed with various adjustments. Example of adjustments include
a. For real property placed in service after 1986 and before 1999, the difference between regular tax depreciation and straight-line depreciation over 40 years.
b. For personal property placed in service after 1986, the difference between regular tax depreciation using the 200% declining balance method and depreciation using the 150% declining balance method (switching to straight-line when necessary to maximize the deduction)
c. For long-term contracts, the excess of income under the percentage-of-completion method over the amount reported using the completed-contract method
d. The installment method cannot be used for sales of dealer property
e. The medical expense deduction is computed using a 10% floor (instead of the 7.5% floor that might have been used for regular tax)
f. No deduction is allowed for home mortgage interest if the loan proceeds were not used to buy, build, or improve the home
g. No deduction is allowed for personal, state, and local taxes, and for miscellaneous itemized deductions subject to the 2% floor for regular tax purposes
h. No deduction is allowed for personal exemptions and the standard deduction
6. Preference items. The following are examples of preference items added to taxable income (as adjusted above) in computing AMTI:
a. Tax-exempt interest on certain private activity bonds reduced by related interest expense that is disallowed for regular tax purposes. However, tax exempt interest on private activity bonds issued in 2009 and 2010 is not an item of tax preference.
b. Accelerated depreciation on real property and leased personal property placed in service before 1987—excess of accelerated depreciation over straight-line
c. The excess of percentage of depletion over the property’s adjusted basis
d. 7% of the amount of excluded gain from Sec. 1202 small business stock. However, there is no preference for QSBS stock qualifying for the 100% exclusion.
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