[Anonymous]

Hello AMT experts,

First of all, how you guys understand/practice AMT related questions for REG? I have hard time understanding this concept. Please help.

here is the question taken from Becker,

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. $17,000

b. $19,500

c. $25,500

d. $21,500

Explanation

Choice “a” 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

---

My question is , as per my understanding the real estate tax, state taxes, home equity mortgage interest for other purpose are added back and qualified mortgage interest for home was ok. But here those state, real estate taxes are excluded and qualified mortgage interest interest is included , why?

How you guys practice/ understand AMT anyway?

[Anonymous]

I just came across this question as I am studying for REG as well. I believe you are understanding the question backwards. In this question they are looking for what the itemized deductions that are allowed for AMT, not what to add back for AMT purposes. In other words, if AMT wasn't present AGI is $100,000 less itemized deductions of $29,000= $71,000. With AMT, you would take the $71,000 and add $12,000 (state taxes of $4,000 + real estate taxes of $3,500 + home equity not used for home purposes of $4,500) or as the question presents it: the allowable itemized deductions for AMT: $29,000 – $12,000= $17,000 allowable itemized deductions.

[PocketsWithCash]

cmertes is exactly right, add-backs are the same thing as disallowed deductions under AMT. Looking at it from the income perspective: taxable income = 71,000. Add 12,000 in add-backs = 83,000 for taxable income under AMT. 100,000 – 83,000 = 17,000 allowable itemized deductions.

FAR 97
REG 91
AUD 5/30/14
BEC 7/11/14

[lunax]

@cmertes

Thanks for your reply.

But I'm still confused with the medical expenses of $2000 (12000-10%*10000). To make it simple, just ask one question:

For a taxpayer under the age of 65, Is the medical expenditure exceeding 10% of AGI allowed or disallowed under AMT?

To my understanding, if it is disallowed under AMT, the 2000 should not be included in the answer to this question.

[Anonymous]

@ Lunax

Long time lurker here, so I hope my first post is helpful!

For purposes of calculating the AMT – only the 10% percent of AGI for medical deductions is added back as an adjustment (In this case that would be 10,000 of the 12,000). The remaining 2,000 would technically be considered an itemized deduction at that point.

The reason for that, to my understanding, is because you are limited to deducting medical expenses in excess of 10% on your schedule A.

Hopefully that was of some help to you! Good luck!

[Anonymous]

“To my understanding, if it is disallowed under AMT, the 2000 should not be included in the answer to this question.”

Medical expense deduction is allowed for AMT

The question is this:

Robert is getting slammed with the AMT. What can he deduct?

2000 for medical expense

5000 charity

10000 to the evil bankers for usury

NOTE: you are starting with AGI, not Robert;s Taxable Income.

[Anonymous]

To make it simple, yes, the medical expenditure exceeding 10% of AGI is allowed for AMT purposes for all AMT individuals, not just under 65.

[lunax]

Finally got it. Thanks very much for all your kind replies.

Previously got confused because of confusing wording from Becker's on adjustments to be added back while calculating AMT from regular taxable income, which reads “Medical deductions (limited to excess over 10 percent AGI; adjustment for taxpayers age 65 and over)”.

Actually, the quotation is merely talking about the 2.5% of AGI to be added back by taxpayers aged 65 or over in their AMT computation.

[Anonymous]

Becker didn't do a great update to the book when the medical expense rule changed from 7.5% to 10% for those under 65. I definitely see where the confusion was.

[Karan M]

I am still having trouble understanding this question. Can soemone explain this?

REG: 08/24/15

[Lets go CPA]

@Karan M

“For regular income tax purposes, medical expense are deductible to the extent they exceed 10% of AGI (7.5 percent if the taxpayer is at least age 65). However, for AMT purposes, medical expenses are deductible only to the extent they exceed 10% of AGI regardless of the taxpayer's age.”

Here is the example I get from my textbook:

Joann, age 66

1)Regular Income Tax

Medical expenses incurred $16,000

Less reduction:

$100,000AGI*7.5% (7,500)

Medical expense deduction $8,500

2) AMT

Medical expenses incurred $16,000

Less reduction:

$100,000AGI*10% (10,000)

Medical expense deduction $6,000

Notice, for a tax payer over 65, the itemized deductions for medical expenses is 2,500 less in our example. So we add it back in our AMT adjustment to arrive at AMTI. (M in PANICTIMME).

What make you really confused is: Before 2013, for regular tax payer, deduction excess of 7.5% of AGI also applies to regular tax payer. Becker didn't revised this part, so it might be getting a little confused. If I were you, I'll put a note “for taxpayer over age 65 only” next to the mnemonic PANICTIMME.

In this question, Robert is a regular taxpayer. So we should have the same itemized deduction under both AMT and regular tax practice. Medical expense is 12,000, 10% of AGI is 10,000. So we have a 2,000 itemized deduction from medical expenses.

If Robert is age 66, his regular tax itemized deduction is 12,000 – 7,500(7.5% of AGI)= 4,500. As an AMT adjustment to arrive AMTI, we should add back 2,500, reducing the AMT itemized deduction to 2,000.

Hopes you could understand now.

[MaLoTu]

From my experience, you can get away with a “jest” knowledge of this subject. Know what is taken out or left in, but there are more important things to focus on in REG. I guess just my .02 🙂

Almost always from my phone... please excuse my typos!

All 4 passed - 2016

CA CPA

[Author]

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