CPA Regulation (REG) : Alternative Minimum Tax

Study concepts, example questions & explanations for CPA Regulation (REG)

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Example Questions

Example Question #1 : Individual Tax Issues

The credit for prior year AMT liability may be carried:

Possible Answers:

Back three years

Back three years or forward a maximum of 15 years

Forward for a maximum of 15 years

Forward indefinitely

Correct answer:

Forward indefinitely

Explanation:

Like capital losses for individuals, AMT credits may be carried forward indefinitely for individual taxpayers. 

Example Question #2 : Alternative Minimum Tax

Which of the following is not an adjustment or preference to arrive at alternative minimum taxable income?

Possible Answers:

Deductible contributions to individual retirement accounts

Passive activity losses

Individual taxpayer net operating losses

Deductible state and local taxes

Correct answer:

Deductible contributions to individual retirement accounts

Explanation:

Adjustments and preferences to arrive at AMTI include many items, such as passive activity losses, accelerated depreciation, net operating loss of an individual taxpayer, state and local taxes, the standard deduction, and private activity bond interest income. Deductible contributions to IRAs are treated the same under AMTI as for taxable income.

Example Question #3 : Alternative Minimum Tax

West is single, has no dependents, and does not itemize. West provides the following information regarding his current-year’s return:

  • Long-term capital gain: $ 15,000
  • Percentage depletion in excess of property’s adjusted basis: 9,000
  • Dividends from publicly held companies: 10,000

What is the amount of West’s AMT tax preference items?

Possible Answers:

$19,000

$34,000

$24,000

$9,000

Correct answer:

$9,000

Explanation:

Among the options provided, only the percentage depletion in excess of a property’s adjusted basis is included as an AMT tax preference item.

Example Question #4 : Alternative Minimum Tax

The credit for prior year AMT liability may be carried:

Possible Answers:

Back to the three preceding years

Forward indefinitely

Back to the three preceding years or carried forward for a maximum of five years

Forward for a maximum of five years

Correct answer:

Forward indefinitely

Explanation:

AMT paid can be claimed as a credit against other years if the tax was paid on items that increased AMT that year but will reverse in later years. The credit is carried forward indefinitely.

Example Question #5 : Alternative Minimum Tax

Of the following is not an adjustment or preference to arrive at AMTI?

Possible Answers:

Deductible state and local taxes

Individual taxpayer net operating losses

Deductible contributions to individual retirement accounts

Passive activity losses

Correct answer:

Deductible contributions to individual retirement accounts

Explanation:

Deductible contributions to individual retirement accounts are not an adjustment or preference in calculation a taxpayer’s AMTI. They are an adjustment in calculating adjusted gross income for regular tax purposes.

Example Question #6 : Alternative Minimum Tax

Of the following, which are allowable itemized deductions for computing AMT income?

Possible Answers:

Both

Home mortgage interest on a loan to acquire a principal residence

Neither

Deductible real estate property taxes

Correct answer:

Home mortgage interest on a loan to acquire a principal residence

Explanation:

Both of these options are normal itemized deductions (Sch A) however not all itemized deductions are included in AMTI.

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