[Anonymous]

Farr, an unmarried taxpayer, had $70,000 of adjusted gross income and the following deductions for regular income tax purposes:

Home mortgage interest on a loan to acquire a principal residence $ 11,000

Miscellaneous itemized deductions above the threshold limitation 2,000

What are Farr’s total allowable itemized deductions for computing alternative minimum taxable income?

a.

$0

b.

$13,000

c.

$2,000

d.

$11,000

My answer is 2000. cos home mortgage interest used to buy a residence is not an add back, and miscellaneous deductions is an add back. why is the correct answer d 11,000? i don’t get it.

Some one please help! thanks!!

[CPA soon]

You answered your own question, it said allowable deduction which is the interest. Miscellaneous is disallowed. You know the rule already you just misread the question.

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[Trojan1988]

Fact that Home mortgage interest is not an add back means that it will not be added to your taxable income (to increase it) for the purpose of AMT and therefore you can use it as a deduction. I mean it will be a deduction for both regular and AMT purposes. That's what I think, though I am not sure if I am right

FAR-(79)
REG-(77)
AUD-(87)
BEC-(75)

[Anonymous]

@cpa soon, thanks. you are saying that the itemized deductions that are add backs to arrive at AMTI are the disallowed items, correct? if it's that way, i think i understand now.

[CPA soon]

@ace29 all I meant was you are “allowed” to take the $11,000 deduction regardless of AMT. Does not get added back in the AMT calculation. Add backs=disallowed deductions as you mentioned.

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[Anonymous]

@ cpa soon, thanks very much!

[pia ach]

can someone please explain why in the above question misc itemized deductions is not taken but in this below question medical expenses above threshold is included it in the calculation for AMT?

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

Medical expenses (before percentage limitations) 12000

State income taxes 4000

Real estate taxes 3500

Qualified housing and residence mortgage interest 10000

Home equity mortgage interest (used to consolidate personal debts) 4500

Charitable contributions (cash) 5000

What are Robert's itemized deductions for altemative minimum tax?

a. $19,500

b. $25,500

C. $21,500

d. $17,000

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[Anonymous]

Is the answer 17,000?

5,000+2,000+10,000

2,000 is Medical expenses over the 10% threshold.

[taxgeek83]

@pia – I tried to answer your question in the REG Study Group thread, but I think it's gotten too big to handle new posts (I can't see it in there unless I'm logged in), so here you go:

First of all, answers are D and A respectively, correct? My understanding is that for AMT purposes, you are not allowed any taxes, medical expenses under the threshold, miscellaneous expenses under the threshold or home mortgage interest paid on a home mortgage loan used for anything other than the acquisition or improvement of a qualified personal residence (someone correct me if I'm wrong or missing anything!). So for your first question, you are allowed the following:

$2,000 medical expenses (the amount paid that is above the 10% threshold)

$10,000 qualified home mortgage interest (the interest paid on a loan used to pay off personal debt is not an allowable deduction)

$5,000 charitable contributions

Your second question, you are allowed both deductions. The home mortgage interest was used to acquire a principal residence, and is thus allowable.

Does that make sense? I'm not 100% sure on the miscellaneous deductions, so if I'm wrong there I apologize.

[pia ach]

Yes it is D 17000.

@taxgeek the second question only one is allowed the Home mortgage interest on a loan to acquire a principal residence $ 11,000, the Miscellaneous itemized deductions above the threshold limitation 2,000 is not allowed. This is what is confusing me. Why is it allowed in first question and not the second?

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[taxgeek83]

Okay – I wasn't sure about the miscellaneous deductions. I don't think the first question has any miscellaneous deductions listed – unless maybe I am missing something? I'm seeing the following:

Medical expenses

State taxes

Real estate taxes

Qualified Home mortgage interest

Home equity mortgage interest (used to consolidate personal debts)

Charitable contributions

[pia ach]

Yea one is medical expenses , the other is misc itemized deductions.

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[taxgeek83]

Oooooh I think I see where you are at. Pull up a Form 1040, Schedule A. There is a line on there (around 20 I think) that is specifically for “Miscellaneous deductions.” Generally that will include un-reimbursed employee business expenses, tax prep fees, etc. Try this:

https://www.irs.gov/publications/p529/ar02.html

That's what the questions means by “Miscellaneous deductions”

[pia ach]

What is the treatment for the two? As far as i remember medical expenses in excess of 10% of AGI is added back. And Misc itemized deductions above2% is added back.

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[taxgeek83]

So for AMT purposes, you are allowed an itemized deduction for medical expenses in excess of 10% of your AGI, but no “miscellaneous deductions.”

Does that clear it up?

[taxgeek83]

I guess for me it's easier to think about it in terms of what itemized deductions are generally allowed, and what are allowed for AMT. The “add back” thing always confuses me – it's like trying to figure out a cash flow statement, which I hate doing. If I just think about the few differences between generally allowed deductions and those few allowed for AMT, I have an easier time figuring the problem out.

The big ones not allowed for AMT are going to be taxes, mortgage interest on a loan not used for the acquisition, building or improvement of a personal residence, and miscellaneous deductions.

[Author]

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