CPA Regulation Reg Quiz: Determine Alternative Minimum Tax

What this quiz covers

This quiz focuses on Determine Alternative Minimum Tax, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Regulation Reg.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. The individual AMT was also fully repealed by the TCJA for all taxpayers.
2. The individual AMT applies only to married filing jointly taxpayers with income above $1 million.
3. The individual AMT was retained but the exemption amounts were significantly increased and the phase-out thresholds were raised, reducing the number of taxpayers affected. (correct answer)
4. The individual AMT rate was reduced from 26%/28% to a flat 15% by the TCJA.

Explanation: 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 The corporate AMT was repealed by the TCJA but reinstated for large corporations by the Inflation Reduction Act (2022) as a 15% corporate AMT on book income for corporations with average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%.

Question 2

1. Subtract all itemized deductions to arrive at AMTI.
2. Add back only the standard deduction if the taxpayer did not itemize.
3. Add back AMT preference items and make AMT adjustments (both positive and negative) to regular taxable income to arrive at AMTI. (correct answer)
4. Multiply regular taxable income by 1.26 to arrive at AMTI.

Explanation: 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.

Question 3

1. $0 because the taxpayer's AMTI exceeds the threshold.
2. $85,700 because the taxpayer's AMTI is below the phase-out threshold. (correct answer)
3. $42,850 because the exemption is always 50% of the full amount.
4. $63,525 reduced by 25% because the taxpayer used itemized deductions.

Explanation: 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.

Question 4

1. $28,000
2. $20,000
3. $26,000 (correct answer)
4. $15,000

Explanation: The AMT rate structure applies 26% to the first $232,600 of AMTI above the exemption and 28$100,000, which is below the $232,600 bracket threshold, the entire amount is taxed at 26$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$15,000) would result from applying a 15% rate, which is not an individual AMT rate.

Question 5

1. No AMT adjustment is required when an ISO is exercised because ISOs are fully tax-exempt.
2. The entire value of the stock at the time of exercise is added to AMTI as a preference item.
3. The AMT adjustment equals the fair market value of the stock on the exercise date, with no offset for the exercise price paid.
4. The spread between the fair market value of the stock and the exercise price at the time of exercise is an AMT adjustment that increases AMTI. (correct answer)

Explanation: 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.

Question 6

1. The standard deduction is fully allowed for AMT purposes because it is a statutory deduction.
2. If a taxpayer claims the standard deduction for regular tax, the standard deduction must be added back in computing AMTI because it is not allowed for AMT. (correct answer)
3. The standard deduction is replaced by a special AMT deduction of $10,000 for single filers.
4. The standard deduction is allowed for AMT at 50% of its regular tax amount.

Explanation: 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.

Question 7

1. $430,000
2. $350,000
3. $216,700
4. $296,700 (correct answer)

Explanation: The MFJ AMT exemption for 2024 is $133,300, and it phases out at a rate of 25$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.

Question 8

1. The excess of percentage depletion claimed over the adjusted basis of the property at year end is added to AMTI as a preference item. (correct answer)
2. All percentage depletion is a preference item added back regardless of the property's adjusted basis.
3. Percentage depletion is a preference item only for oil and gas properties, not other mineral resources.
4. The preference item equals the difference between percentage depletion and cost depletion for the year.

Explanation: 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.

Question 9

1. Interest on a home equity line of credit used to pay off consumer credit card debt.
2. Interest on a second mortgage used to fund a vacation.
3. Interest on a home equity loan used to remodel the taxpayer's primary residence, up to $100,000.
4. Interest on acquisition debt (mortgage used to buy, build, or substantially improve a qualified residence), up to $750,000 of principal. (correct answer)

Explanation: 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.

Question 10

1. The disqualifying disposition eliminates the AMT adjustment entirely because no ISO benefit was received.
2. The AMT adjustment is permanent and cannot be reversed even on disqualifying disposition.
3. On a disqualifying disposition in the same year as exercise, the AMT adjustment is eliminated because ordinary income recognized on the disqualifying disposition replaces the ISO spread in both regular and AMT income. (correct answer)
4. The disqualifying disposition creates an additional AMT preference item equal to the gain recognized.

Explanation: 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.

Question 11

1. NOLs are fully deductible for AMT in the same amount as for regular tax.
2. NOLs are not deductible at all for AMT purposes.
3. NOLs reduce AMTI by 100% of the NOL but only in years when the taxpayer has no AMT adjustments.
4. An AMT NOL deduction (AMTNOLD) is computed separately from the regular tax NOL and may reduce AMTI by no more than 90% of AMTI (before the AMTNOLD deduction) under Section 56(d)(1). (correct answer)

Explanation: For AMT purposes, a separate alternative minimum tax net operating loss (AMTNOL) is computed, reflecting AMT adjustments and preferences in the year the loss arose. Under Section 56(d)(1), the AMTNOLD deduction is limited to 90% of AMTI (before the AMTNOLD deduction) - a limit that is distinct from the 80% regular-tax NOL limitation enacted by the TCJA. The 90% AMT limit has applied since before the TCJA. Answer D is correct. Answer A is incorrect because the AMTNOL is computed using AMT-specific rules and is subject to the 90% limitation. Answer B is incorrect because AMT NOLs are deductible, subject to limitations. Answer C is incorrect because the 90% limitation applies in all years, not only when there are no AMT adjustments.

Question 12

1. $7,000, the excess of tentative minimum tax over regular tax. (correct answer)
2. $45,000, the full tentative minimum tax.
3. $38,000, because the taxpayer pays the higher of the two taxes.
4. $0, because the regular tax already accounts for all income.

Explanation: AMT payable = tentative minimum tax - regular tax (before credits) = $45,000 -$38,000 = $7,000. The taxpayer pays their regular tax of$38,000 plus the $7,000 AMT, for a total tax liability of$45,000. The AMT is not added to the regular tax as a separate item but is the amount by which TMT exceeds regular tax. Answer B ($45,000) is the TMT; the taxpayer pays regular tax plus the excess, totaling$45,000, but the incremental AMT payment is $7,000. Answer C ($38,000) treats the taxpayer as paying only the greater of the two, ignoring the excess AMT. Answer D is incorrect because the AMT regime exists precisely to ensure a minimum tax payment regardless of regular tax deductions.

Question 13

1. $0 because AMT credits can only be used in the year following generation.
2. $10,000, the full credit carryforward.
3. $5,000, limited to 50% of the available credit.
4. $8,000, limited to the excess of regular tax over tentative minimum tax. (correct answer)

Explanation: Under Section 53, the minimum tax credit is limited in any year to the excess of regular tax liability over the tentative minimum tax. In Year 2, regular tax exceeds TMT by $8,000, so the taxpayer may use$8,000 of the $10,000 AMT credit. The remaining$2,000 carries forward to future years. Answer A is incorrect because the credit carries forward indefinitely, not just to the following year. Answer B is incorrect because the credit is limited to the excess of regular tax over TMT; the full $10,000 cannot be used if TMT is close to regular tax. Answer C (50% limit) does not reflect the Section 53 statutory formula.

Question 14

1. No nonrefundable credits may offset AMT; all nonrefundable credits are limited to regular tax liability only.
2. Only the child tax credit may offset AMT.
3. The child and dependent care credit, the adoption credit, and certain other personal credits may be used to offset AMT under current law. (correct answer)
4. All nonrefundable credits may fully offset AMT because the TCJA eliminated AMT restrictions on credits.

Explanation: Under current law (post-TCJA), certain nonrefundable personal credits are allowed to offset AMT, including the child and dependent care credit, the adoption credit, the retirement savings contributions credit, and others listed in Section 26. Prior law restricted nonrefundable credits from offsetting AMT, but the TCJA temporarily (and subsequent legislation more permanently) allowed these credits to offset AMT. Answer A is incorrect because certain credits are allowed against AMT under current law. Answer B is incorrect because while the child tax credit is partially refundable, it is not the only credit permitted against AMT. Answer D overstates the change; not all nonrefundable credits offset AMT.

Question 15

1. R&E expenditures are a preference item and must be added back entirely to AMTI.
2. For AMT, R&E expenditures expensed for regular tax by a taxpayer who does not materially participate in the research activity must be amortized over 10 years, creating timing adjustments; taxpayers who materially participate in the research are not subject to this AMT capitalization requirement. (correct answer)
3. R&E expenditures are treated identically for regular tax and AMT purposes; no adjustment is required.
4. R&E expenditures are deductible at 50% for AMT versus 100% for regular tax.

Explanation: Under pre-TCJA IRC Section 56(b)(2), R&E expenditures that were expensed for regular tax by a taxpayer who did not materially participate in the research activity had to be capitalized and amortized over 10 years for AMT purposes, creating a positive AMT adjustment in the year of expenditure and negative adjustments in later years. However, this 10-year capitalization requirement did not apply when the taxpayer materially participated in the research activity. Note that the TCJA (effective 2022) now requires capitalization of R&E for regular tax as well, which largely eliminates this AMT timing difference going forward. Answer B is correct. Answer A is incorrect because R&E is not a preference item; it is an AMT timing adjustment. Answer C is incorrect because a 10-year amortization requirement exists for AMT when material participation is absent. Answer D is incorrect because there is no 50% AMT deduction rule for R&E.

Question 16

1. State and local income taxes (SALT) deducted on Schedule A.
2. Charitable contributions deducted on Schedule A. (correct answer)
3. Home equity loan interest deducted for regular tax where the loan was used for personal (non-acquisition) purposes.
4. Miscellaneous itemized deductions subject to the 2% floor.

Explanation: Charitable contributions are allowed as a deduction for both regular tax and AMT purposes. They are not an AMT adjustment or preference item. Answer A is incorrect because SALT deductions (state and local income taxes, property taxes) are not deductible for AMT purposes and must be added back as an AMT adjustment. Answer C is incorrect because home equity loan interest not used to acquire, build, or improve the home is not deductible for AMT (only qualified housing interest on acquisition debt is allowed for AMT). Answer D is incorrect because miscellaneous itemized deductions subject to the 2% AGI floor are not deductible for AMT purposes (though the TCJA suspended these deductions for regular tax through 2025 as well).

Question 17

1. Both state income taxes and real property taxes are not deductible for AMT purposes and must be added back entirely as AMT adjustments. (correct answer)
2. State income taxes are added back for AMT but real property taxes remain deductible.
3. The $10,000 SALT cap applies for both regular tax and AMT, so no additional add-back is required.
4. Only the amount of SALT deductions exceeding $10,000 must be added back for AMT.

Explanation: For AMT purposes, taxes (state, local, and foreign income taxes, and real and personal property taxes) are not deductible at all. Any amount of SALT deducted for regular tax (up to the $10,000 cap) must be added back as an AMT adjustment. Even though the regular tax caps SALT at$10,000, the AMT disallows the entire deduction. Answer B is incorrect because both income taxes and property taxes are disallowed for AMT. Answer C is incorrect because the $10,000 SALT cap is a regular tax limitation; AMT disallows the entire SALT deduction. Answer D is incorrect because the entire SALT deduction is added back for AMT, not just the amount exceeding$10,000.

Question 18

1. Interest income from specified private activity bonds issued after August 7, 1986. (correct answer)
2. Charitable contributions of appreciated property.
3. Foreign tax credits claimed on the regular tax return.
4. The standard deduction claimed on the regular tax return.

Explanation: Tax preference items under Section 57 include interest on specified private activity bonds issued after August 7, 1986 (other than bonds issued for housing or certain other qualified purposes). This interest is excluded from regular taxable income but is a preference item added back for AMT purposes. Answer B is incorrect because charitable contributions are an itemized deduction and subject to AMT adjustments regarding certain property, but the contribution itself is not a preference item added back. Answer C is incorrect because foreign tax credits affect the regular tax computation; they are not an AMT preference item. Answer D is incorrect because the standard deduction is an AMT adjustment (added back if taken), not technically classified as a preference item under Section 57.

Question 19

1. Real property uses straight-line depreciation for both regular tax and AMT, so no AMT adjustment is required.
2. For AMT, real property must be depreciated using the straight-line method over the ADS class life, versus straight-line over GDS life for regular MACRS; the difference between AMT and regular depreciation is an AMT adjustment. (correct answer)
3. Real property uses 150% declining balance for AMT instead of straight-line for regular tax.
4. Depreciation on real property is a preference item added back entirely for AMT purposes.

Explanation: For real property placed in service after 1986, regular MACRS uses straight-line depreciation over the GDS recovery period (27.5 years for residential rental property, 39 years for nonresidential real property). For AMT, real property must use straight-line over the ADS life (40 years for most real property). The longer ADS life produces smaller AMT depreciation deductions in early years, creating a positive AMT adjustment. Answer A is incorrect because the GDS and ADS lives differ, creating an AMT adjustment. Answer C is incorrect because real property uses straight-line for both regular and AMT, not declining balance. Answer D is incorrect because depreciation on real property is an AMT adjustment, not a preference item.

Question 20

1. Long-term capital gains are taxed at the AMT rate of 26% or 28%, not the preferential capital gains rates.
2. Qualified dividends are added back as preference items and taxed at the ordinary AMT rate.
3. Long-term capital gains and qualified dividends retain their preferential tax rates (0%, 15%, 20%) for both regular tax and AMT purposes; they are not taxed at the higher AMT rates. (correct answer)
4. Long-term capital gains are exempt from AMT entirely.

Explanation: Under Section 55(b)(3), the preferential rates applicable to long-term capital gains and qualified dividends (0%, 15%, 20%) are preserved for AMT purposes. These income items are included in AMTI but are not subject to the 26%/28% AMT rates; they retain the lower capital gains rates. The AMT rates apply only to ordinary income within AMTI. Answer A is incorrect because LTCG are not subject to the 26%/28% AMT rates. Answer B is incorrect because qualified dividends are not added back as preference items. Answer D is incorrect because LTCG are included in AMTI but taxed at preferential rates, not exempted entirely.