[Shay]

I think there might be a mistake is

On their joint tax return, Sam and Joann 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. $21,750

b. $23,750

c. $35,000

d. $38,750

Solution:

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

Medical expenses in excess of 7.5% AGI but not in excess of 10% of AGI . . . . . . . . . . .3,750

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

Total “PANIC TIMME” add-back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,750

Choices “a”, “b”, and “c” are incorrect per the above rule and per the above calculations.

My view on this concept

Medical expense are deductible up 10% of AGI, not 7.5% for AMT, which in this case this 0. because $150,000 x 10% ==15,000 – 15,000 (medical expeneses) ===0

Misc I.D are not allowed, they are added-back. in this case, its $5,000 is added back

There is a Becker question # CPA-05537

Robert had current-year adjusted gross income of $100,000 and potential itemized deductions as follows:

Medical expenses (before percentage limitations) $12,000

State income taxes 4,000

Real estate taxes 3,500

Qualified housing and residence mortgage interest 10,000

Home equity mortgage interest (used to consolidate personal debts) 4,500

Charitable contributions (cash) 5,000

What are Robert’s itemized deductions for alternative minimum tax?

Answer: $70,000

Choice “a” is correct. Robert’s itemized deductions for alternative minimum tax purposes are calculated as follows:

Medical expenses (exceeding 10% of AGI) $2,000

State income taxes (not allowed) —

Real estate taxes (not allowed) —

Qualified housing and residence interest 10,000

Home equity mortgage interest (not used to buy,

build, or improve the home-not allowed) —

Charitable contributions (no difference) 5,000

Alternative Minimum Itemized deductions $17,000

[Jeremy]

Both questions are right, but there is a difference in what they are asking. When the AICPA question asks for the add backs it is essentially asking what is the difference between the AMT itemized deductions and normal itemized deductions, while the Becker question is looking for the total amount of AMT itemized deductions.

In regards to the medical expenses you are right that they can't deduct any of them, but again the question is seeking the difference which is $3,750. With the Misc. ID, they are originally subject to the 2% floor which limited them to $2,000 hence the $2,000 add back.

B- 8/13/2012- 92
A- 7/19/2012- 83
R- 5/30/2012-82
F- 7/3/2012- 90

[Shay]

@Jeremy thanks.

[Anonymous]

Can you help me please with this question, I stil don't get it?

Why are we even concerned with the 7.5% when it is not stated that the couple are >65 years old?

Are we supposed to always calculate this? I am so confused.

[spatel15]

You're good its not important, this assumes your old as f, dumb assumption. 7.5% only applies to old people. Math is right only if theyre old.

EDIT: It's an old question i.e. rates were different(pre 2013), so ignore the first question, not important. It's actually not because of age as I first though, it's about obsolescence of the MCQ itself.

[Author]

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