[kpmartin42]

Hey guys,

Maybe someone can shed some light on this for me.

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?

b.

$17,000

Choice “b” 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

In the Becker lecture, it specifically states that home mortgage interest and charity are not added back for AMT purposes.. Am i missing something here?

[MikeHoncho]

Home mortgage interest is allowed if the proceeds from the loan are used to acquire or to improve the principal residence. Home mortgage interest is added back to taxable income to compute AMT income if the proceeds from the loan are not used to acquire or to improve the principal residence (eg I use the loan to buy a car).

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[zxiao]

I've struggled a long time to figure this one out. The question is asking for itemized deduction for AMT, not asking you to make adjustments from taxable income (TOTALLY different thing). So, the itemized deductions for taxable income, like taxes paid are not deductible for AMT, but added back when you make adjustments for AMT. Basically, things that are not added back for AMT (those adjustments except for medical and miscellaneous) are deductible for the purpose of itemized deduction for AMT alone. Thus, itemized deductions for AMT in your question are 10% excess of medical expenses, qualified housing, and charitable contribution. I hope I don't make you more confused. Again, the question is not asking you to make adjustments from taxable income. It's asking you to calculate itemized deduction for AMT alone.

I Can Do This!!!!!

BEC: 89
AUD: 99
REG: 93
FAR: 8/2/2014

[kpmartin42]

@zxiao The medical expenses also get me. Becker says, “Medical expenses must exceed 10% of AGI” for an itemized deduction, but another problem has an answer explanation that says, “Medical expenses not exceeding 10% of AGI. So what is added back to regular taxable income for AMT? The amount medical expenses exceed 10% of AGI or the amount of medical expenses less the amount that exceeds 10%?

[zxiao]

@kpmartin42

The amount medical expenses exceed 10% of AGI is added back to regular taxable income for AMT. I think if the taxpayer is 65 or older, it's 7.5%.

I Can Do This!!!!!

BEC: 89
AUD: 99
REG: 93
FAR: 8/2/2014

[h0wdyus]

In regular tax liability calculations. Excess over 10% of AGI is treated as itemized deduction for year 2013. It was 7.5 % for 2012.

Further 7.5% still applies in 2013 if you are over 65 years old.

AMT allows excess of 10% of AGI as a itemized deduction. So if the individual is under 65 years of age no adjustment needs to happen to Regular taxable income to calculate AMTI. If it is 7.5 % then 2.5 % is added back to Reg Taxable Income to calculate AMTI.

Other Itemized deduction allowed in calculating AMTI ( that is no adjustment needs to be made to Regular Income) are 1 ) Charitable contribution 2) Misc Itemized deductions that are NOT subject to 2% floor such as Gambling losses ; Estate Tax related to income in respect of decedent; Amortization of Bond Premium.and a few more.

I hope I did not make the confusion worse.

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[kpmartin42]

So medical expenses less than the threshold would be added back to AMT?

[onmyway17]

Hi guys.. I have the same question… in the PANICTIMME ( becker for AMT) it says that medical expenses in excess of 10% of AGI are added back. Somewhere else, I read that we use it as an itemized deductions for AMT .. which one is it???? We already deduct it for regular tax, do we add it back or we leave it??

FAR - 82
AUD- 91
REG- 81
BEC- 78

If it's important, you will find a way... if not, you will find an excuse. LET 2014 be the year!!!!

[h0wdyus]

For Regular Tax :– Anything above 10% of AGI is treated as Itemized Medical Deduction and treated as itemized dedcution.

For AMT :– It is the SAME as above.

a) if you use regular taxable Income and adjust it to arrive at AMT. There needs to be NO adjustment made to regular taxable Income. Since the deduction is the same in both regular and amt calculations.

b) if you are Not using the adjustment approach in a ) above, i.e you calculate AMT like a direct calculation ( not adjustment in a above); then you have to deduct excess of 10% of AGI . to arrive at AMT. ( same treatment as in regular taxable income calculation)

Bottom line no adjustment needs to be made to regular taxable income to arrive at amt when 2013 medical itemized medical expense is being adjusted.

Note: for people over 65 in regular tax we sill use 7.5% of AGI. so adjustment needs to be done.

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[GQStatus]

I hate this question with a passion. I'm sorry but none of the explanations that are posted here are not helping. I'm having the same problem because Gearty specifically said that Mortgage Interest and Charitable Contributions were NOT included. And aren't the taxes included based on the mnemonic PANIC TIMME? (T – Taxes reduced by refunds). I'm not sure if my way of thinking about this question is flawed. Well actually it is if I got the question wrong. How should I be thinking to tackle this question?

FAR - (Let's not talk about that score)
AUD - 77!
REG - 70, 70
BEC - 77!

[Anonymous]

Can someone explain why the state income ($4K) and real estate taxes ($3.5K) are not included?

[NJPRU]

It's asking for “What are Robert's itemized deductions for alternative minimum tax?” not for his adjusted AMT amount. If it were the adjusted AMT amount, you would include the tax as add backs. This is asking for allowable AMT itemized deductions.

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[Anonymous]

Thanks, NJPRU!

[thelonewolf527]

So “itemized deductions for AMT” are the itemized deductions that AREN'T added back as adjustments, correct?

AUD - 08/04/14 - 83
FAR - 11/29/14 - 80
REG - 02/26/15 - 89
BEC - 05/30/15 - 86

DONE!

[NJPRU]

Generally, yes, for instance, medical for anyone 65+ is added back to the extent of the 7.5% limitation; however, it is an itemized deduction for anything over the 10% AGI threshold, same can be said about interest relating to “home equity” to buy a home (itemized deduction) vs interest relating to “home equity” of any other nature (addback). Generally, unless otherwise stated, if it's not in TIMME, don't add it back and use as an itemized deduction (i.e. charitable contributions).

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[jordancole]

IMO the medical expenses are the tricky part here…Becker wasn't clear in indicating that there can be times where medical expenses are allowed as deductions on the regular tax return but not for the AMT. Fact Pattern:

Reg Tax Itemized Adjustment = $15,000 – ($150,000 *.075) = $3,750

AMT Tax Allowed as Itemized = $15,000 – ($150,000 * .10) = $0

Therefore, the $3,750 must be added back to AMT Taxable Income. The difference comes about in this odd situation where the taxpayers are older and have a lower AGI % hurdle to jump over when figuring the itemized deduction allowed for regular taxes. AMT does not take age into consideration with their Medical expenses, and so we can have times where the taxpayer might get a deduction for regular taxes but not for AMT.

AUD - NINJA in Training
BEC - 88
FAR - 89
REG - NINJA in Training

There is a direct correlation between your relationship with the late night janitors in your office bldg and your CPA Exam scores....

[Author]

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