[gaacct]

Can anyone help with medical expenses in AMT calculations? In the problem below, the answer states that medical expenses are deductible to the extent that they exceed 10% of AGI. In this case, AGI is $150,000 and medical expenses are 15,000. I’m thinking (incorrectly) that this would mean that the medical expenses above 10% of AGI (or $5,000) are deductible but the $10,000 that is not in excess of 10% of AGI would be added back… Ideas?

Q: 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: The interest, taxes, and miscellaneous itemized deductions are not deductible for AMT (alternative minimum tax). The medical expenses are deductible to the extent that they exceed 10% of AGI for both regular and AMT. Miscellaneous itemized deductions are deductible for regular tax (not AMT) only to the extent that they exceed 2% of the individual’s AGI. For this taxpayer, the miscellaneous itemized deduction for regular tax would be limited to the amount exceeding AGI of $150,000 × 2% (or 0.02) = $3,000.

Therefore, the taxpayer would have as a miscellaneous itemized deduction $2,000 ($5,000 – $3,000). This deduction is not allowed for AMT and would be added back to taxable income to calculate the alternative minimum taxable income.

Add back:

Interest ($15,000) + Taxes ($18,000) + Miscellaneous itemized deductions ($5,000 – ($150,000 × 0.02)) = $35,000

AUD 84 (Oct 13)
BEC 85 (Jan 14)
FAR 76 (May 14)
REG 62, 63, 72, 74

[leglock]

It looks like you made a simple mathematical error. 10% of agi is 15,000 not 5,000 which is what you listed above. You can deduct the amount above 10% of agi. medical expenses were exactly 10% of agi, therefore, you deducted no medical and have no amt addback.

[gaacct]

Thank you!!

Funny how if you look at something for so long, you lose sight of the simple stuff.

AUD 84 (Oct 13)
BEC 85 (Jan 14)
FAR 76 (May 14)
REG 62, 63, 72, 74

[Author]

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