[CPApracticer]

On their joint tax return, Sam and Joann had AGI of 150000 and claimed the following itemized deductions:

Interest of 15000 on a 100000 home equity loan to purchase a motor home

Real Estate tax and state income taxes of $18000

Unreimbursed medical expenses of $15000 (prior to AGI limitation)

Miscellaneous itemized deductions of $5000 (prior to AGI limitation)

Based on these deductions, what would be the amount of AMT add-back adjustment in computering alternative minimum taxable income?

a) 21750

b) 38750

c) 35000

d) 23750

Answer: B

Taxes 18000

Home mortgage interest not used to buy, build or improve qualified dwelling) 15000

Medical expenses in excess of 7.5% AGI but not in excess of 10% of AGI 3750

Deductible miscellaneous expenses in excess of 2% of AGI 2000

Total “PANIC TIMME” Add Back 38750

Question:

How come miscellaneous deduction is added back? I thought it was not allowed

Where in the ” PANIC TIMME” mnemonic is this Home mortgage interest

If anyone can help me, I would really appreciate it. Thank you

F: 54 (4/13) 60 (4/14) 67 (9/14) 66 (10/14) 63 (11/15) 79 (2/16) PASSED
A: 60 (5/13) 80 (4/16) PASSED
R: 60 (7/13) 61 (2/15) 70 (4/15) 77 (7/15) PASSED
B: (6/16)

[CPA Exam]

None of those expenses are allowable, which is why they are all being added together. You are correct when you say that Msc. deduction is added back. Also, some interest deductions on home equity loans are not allowable. These include interest expenses that are not used to buy, build, or improve a qualified dwelling. (This is the second “I” in the Becker phrase.)

I hope that helps!!

Audit: 97
BEC: 92
REG: 89
FAR: (8/30/2013)

[barelystayingsane]

Can anyone confirm this for me? Only miscellaneous itemized deductions subject to the 2% floor are added back, and miscellaneous itemized deductions not subject to the 2% floor (for example, gambling losses, annuity principal not recovered before death, etc.) are NOT added back, correct? Also, personal exemptions are added back, but dependency exemptions do not need to be added back, correct? Thanks!

[Author]

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