The TCJA retained the individual AMT but substantially increased the exemption amounts and the income thresholds at which the exemptions phase out, significantly reducing the number of individual taxpayers subject to AMT. For 2024, the exemption is $85,700 for single filers and $133,300 for married filing jointly. The corporate AMT was repealed by the TCJA but reinstated for large corporations by the Inflation Reduction Act (2022) as a 15% corporate AMT on book income for corporations with average annual adjusted financial statement income over $1 billion. Answer A is incorrect because the individual AMT was retained. Answer B is incorrect regarding the threshold. Answer D is incorrect because the individual AMT rates remain 26% and 28%.

AMTI is computed by starting with regular taxable income and then adding back tax preference items (such as percentage depletion in excess of basis, excluded gain on qualified small business stock, and private activity bond interest) and making AMT adjustments (such as adding back the standard deduction if taken, recalculating depreciation using AMT methods, and adding back miscellaneous itemized deductions). Answer A is incorrect because itemized deductions are handled through specific AMT adjustments, not a blanket subtraction. Answer B is incorrect because the standard deduction add-back is one of many adjustments; it does not stand alone. Answer D is a fabricated formula with no basis in the Code.

The AMT exemption phases out at a rate of 25 cents per dollar of AMTI above the phase-out threshold. The single filer phase-out threshold is $609,350 (2024). Since the taxpayer's AMTI of $260,000 is below $609,350, no phase-out applies and the full exemption of $85,700 is available. Answer A is incorrect because the taxpayer's AMTI ($260,000) is well below the phase-out threshold ($609,350). Answer C is incorrect because the 50% reduction is not a standard formula; the exemption is reduced only when AMTI exceeds the phase-out threshold. Answer D is incorrect because itemized deductions do not directly reduce the AMT exemption in this manner.

The AMT rate structure applies 26% to the first $232,600 of AMTI above the exemption and 28% to amounts above that threshold (2024 figures). Since the couple's AMTI after exemption is $100,000, which is below the $232,600 bracket threshold, the entire amount is taxed at 26%. Tentative minimum tax = $100,000 x 26% = $26,000. Answer A ($28,000) would result from applying the 28% rate to the entire amount. Answer B ($20,000) would result from applying a 20% rate. Answer D ($15,000) would result from applying a 15% rate, which is not an individual AMT rate.

When a taxpayer exercises an ISO, there is no regular income tax recognized (assuming the holding period requirements are met). However, for AMT purposes, the spread (FMV of stock minus exercise price) at the time of exercise is an AMT preference/adjustment item that increases AMTI. This is one of the most common triggers of individual AMT for employees of high-growth companies. Answer A is incorrect because ISOs create an AMT adjustment even though they are not recognized for regular tax. Answer B is incorrect because only the spread (not the entire FMV) is the AMT adjustment. Answer C is incorrect because the exercise price paid is subtracted from FMV to determine the spread; the full FMV is not added.

The standard deduction is not allowed for AMT purposes. If a taxpayer claims the standard deduction on their regular tax return, the full amount must be added back to regular taxable income when computing AMTI. Taxpayers who itemize for regular tax avoid this add-back on some deductions, though many itemized deductions (such as SALT) are also disallowed for AMT. Answer A is incorrect because the standard deduction is specifically disallowed for AMT. Answer C is incorrect because no special $10,000 AMT deduction replaces the standard deduction. Answer D is incorrect because there is no 50% allowance; the standard deduction is simply not permitted for AMT.

The MFJ AMT exemption for 2024 is $133,300, and it phases out at a rate of 25% of AMTI above $1,218,700. Since the taxpayer's AMTI ($430,000) is below the phase-out threshold ($1,218,700), the full exemption applies. AMTI after exemption = $430,000 - $133,300 = $296,700. Answer A ($430,000) is the AMTI before subtracting the exemption. Answer B ($350,000) is the regular taxable income. Answer C ($216,700) would result from subtracting $213,300, which is not the correct exemption amount.

Under Section 57(a)(1), the excess of percentage depletion deductions over the adjusted basis of the property at the end of the year is a tax preference item added to AMTI. Once the property's adjusted basis has been reduced to zero, any further percentage depletion is entirely a preference item. Answer B is incorrect because only the excess over adjusted basis is the preference item; depletion up to adjusted basis is not added back. Answer C is incorrect because the preference applies to percentage depletion from any property, not only oil and gas. Answer D is incorrect because the preference is measured against adjusted basis, not against cost depletion.

For AMT purposes, only qualified housing interest (interest on acquisition debt used to acquire, construct, or substantially improve a qualified residence) is deductible. The acquisition debt limit is $750,000 (post-TCJA). Interest on home equity loans or lines of credit used for purposes other than acquisition, construction, or substantial improvement is not deductible for AMT purposes, even if it is deductible for regular tax (when used for home improvement). Answer A (credit card payoff) is not acquisition debt and is not AMT-deductible. Answer B (vacation funding) is not acquisition debt. Answer C would be deductible for AMT only if the home equity loan was used for home improvement meeting the acquisition/improvement standard, but the $100,000 limit is a regular tax concept, not AMT.

When a taxpayer exercises an ISO and makes a disqualifying disposition in the same year, the spread that would have been an AMT adjustment is recognized as ordinary income for regular tax in the same year. Because the income is now included in regular taxable income, the AMT adjustment is effectively neutralized - the income appears in both regular tax and AMTI, so no separate AMT adjustment is needed for the ISO spread. This avoids the AMT trap that would otherwise result from holding the stock. Answer A is incorrect because the elimination is not automatic in all cases; the key is same-year recognition. Answer B is incorrect because the adjustment is not permanent; it reverses on disqualifying disposition in the same year. Answer D is incorrect because no additional AMT preference arises from the ordinary income recognized.