[Anonymous]

This MCQ is under Becker, Question: CPA-07183

On their joint tax return, Sam and Joann, who are both over age 65, had adjusted gross income (AGI) of $150,000 and claimed the following itemized deductions:

Interest of $15,000 on a $100,000 home equity loan to purchase a motor home

Real estate tax and state income taxes of $18,000

Unreimbursed medical expenses of $15,000 (prior to AGI limitation)

Miscellaneous itemized deductions of $5,000 (prior to AGI limitation)

Based on these deductions, what would be the amount of AMT add-back adjustment in computing alternative minimum taxable income?

a.$38,750

b.$21,750

c.$23,750

d.$35,000

Choice “d” is correct. Per the mnemonic “PANIC TIMME,” for purposes of calculating alterative minimum taxable income, the taxpayer must add back, among other things, the following itemized deductions:

– Taxes reduced by taxable refunds,

– Home mortgage interest when the mortgage loan proceeds were not used to buy, build, or improve the taxpayer’s qualified dwelling (HOUSE, CONDOMINIUM, APARTMENT, OR MOBILE HOME NOT USED ON A TRANSIENT BASIS),

– Medical expenses not exceeding 10% of AGI, and

– Miscellaneous deductions subject to the 2% of AGI floor.

The “PANIC TIMME” add-back is as follows:

Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,000

Home mortgage interest not used to buy, build, or improve a qualified dwelling (THE

MOTOR HOME IS NOT A QUALIFIED DWELLING) . . . . . . . . . . . . . . . . . . . . . . . . . .15,000

Deductible miscellaneous expenses in excess of 2% of AGI . . . . . . . . . . . . . . . . . 2,000

Total “PANIC TIMME” add-back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,000

MY QUESTION:
1) If they are both OVER 65, then how come the difference between 10% and 7.5% for elders isn’t added back in(i.e. $3,750) for AMT purposes?

2) Also, correct me if I’m wrong but, the medical expense deduction for 10% would be 0 because $15,000-15,000 (10% AGI) = 0, so under 10% rule there would be no deduction, but since they are 65+ they claimed deduction of medical expenses in excess of 7.5% AGI, $3,750 would be added back right?

Under 10% AGI Under 7.5% AGI
————– ————–
15,000 15,000
<15,000> <11,250>
———— ————–
0 3,750 <= added back since they are 65+

[Holly]

For AMT, the medical is always 10%. The amount given was before AGI limitation, and was AGI and not taxable income. Had the total been taxable income it would've included the medical deduction appropriate for their age already and you would've taken out the difference.

AUD - 76
BEC - 82
FAR - 82
REG - 86

Becker & Ninja MCQ

 

 

 

BEC - 79
REG - 85
AUD - 5/27/16

[SR JAX]

You are right that they are 65 or older so they use the 7.5% agi limitation. AMT is notoriusly confusing, but if you look at the Form 6251 it is saying to add back lessor of 2.5% of AGI and medical expenses deducted if over age 65. So it would be answer A.

[Holly]

I'm looking at this again and I think you're right. On their return they would've deducted $3,750 which would need to be added back because regardless of their age, they can only deduct 10% for AMT.

AUD - 76
BEC - 82
FAR - 82
REG - 86

Becker & Ninja MCQ

 

 

 

BEC - 79
REG - 85
AUD - 5/27/16

[wangwei2136]

Can someone please explain why the 2.5% of medical expense doesn't add back according to the answer? Thank you.

[Author]

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