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Topic
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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+
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