[yankeeaccountant]

Ok, here is the question that has me confused:

In 2009, Karen Miller had an alternative minimum tax liability of $20,000. This was the first year she paid an AMT. When she recomputed her 2009 AMT using only exclusion preferences and adjustments, her AMT was $9,000. For 2010, Karen had a regular tax liability of $50,000 and a tentative minimum tax of $45,000. What is the amount of Karen’s unused minimum tax credit from 2010 that will carry over to 2011?

A. $0

B. $4,000

C. $5,000

D. $6,000

The answer is D. The answer is too long to type,but here is some info: Karen’s payment of $20,000 of AMT in 2009 generates a minimum tax credit of $20,000-9,000= $11,000, which is carried forward to 2010. Since Karen’s 2010 regular tax liability of $50,000 exceeded her tentative min tax if $45,000, $5,000 of Karen’s min tax credit would be used to reduce her 2010 tax liability to $45,000. Therefore $11,000-$5,000=$6,000 unused min tax credit would carry over to 2011.

Ok, what confused me was, “when she recomputed her 2009 using only exclusion preferences …”. I understand that they are talking about her 2010 calculation of AMT, but what do they mean by using only exclusion preferences? Isn’t that how it is always calculated? I already understand where I went wrong with this one just be typing it out! Good mental exercise. But I am still puzzled by their wording….any thoughts?

Thanks for your help guys!

[RedRage00]

AMT is a pain. This is one area that I'm going to have to review a little more. I really don't understand the point of it LOL

Texas CPA
Licensed, March 2012

[Anonymous]

AMT has two components — deferrals and exclusion preferences. You can only carry forward a tax credt for deferrals. For example, I got hit with AMT in 2009, but all I had were exclusion items (such as state property tax), which is usual for an individual tax filer,who would normally not have something like an accelerated depreciation schedule — therefore, no credit for 2010. The trick in the question is that they want you to confuse the exclusion with the deferral and think her tax credit is $9000, instead of the 11,000 in deferrals (total minus exclusion).

From IRS website:

The AMT is caused by two types of adjustments and preferences—deferral items and exclusion items. Deferral items (for example, depreciation) generally do not cause a permanent difference in taxable income over time. Exclusion items (for example, the standard deduction), on the other hand, do cause a permanent difference. The minimum tax credit is allowed only for the AMT caused by deferral items.

[Anonymous]

I just came across the same question in the Wiley REG text.

As @dianepage said, AMT has 2 components: exclusions and deferrals. Exclusion items are adjustment or preference items that affect only one tax year and cause a permanent difference between regular taxable income and AMTI. For individuals, an example is state and local income taxes.

Deferral items are adjustment and preference items that affect more than one tax year. These items cause a difference in regular taxable income and AMTI in two or more years, but do not cause a permanent difference over time. This commonly is referred to as a timing difference. All deferral items cause a timing difference between regular tax and AMT.

Under AMT, the minimum tax credit is determined by taking the “AMT paid” and deducting the “AMT computed using only the exclusions”.

In this question, Karen Miller had a minimum tax credit of $11,000 ($20,000 – $9,000) in 2009. The minimum tax credit can then be carried forward and applied to the following year by the amount that “regular tax liability” exceeds our “tentative AMT liability”.

In this problem, Karen Miller's regular tax liability in 2010 was $50,000 and her tentative AMT liability was $45,000. Therefore; only $5,000 ($50,000-$45,000) of the minimum tax credit originating from 2009 can be applied to 2010. The remanding $6,000 leftover ($$11,000 – $5,000) will carry over to 2011.

Hope this helps.

[Author]

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