[Anonymous]

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?

a.

$21,500

b.

$19,500

c.

$17,000

d.

$25,500

My answer was 2000 medical +4000state income tax+4,500 home equity interest=10,500. It’s a wrong answer .

The correct answer is 2000 medical + 10,000 home interest+5000 charity.

I think I read the question wrong. I guess when it asks what’s the itemized deductions for alternative minimum tax, it’s asking the amount that does not need to be added back for AMT purposes?

Can someone explain this and also explain the medical expenses? for AMT add backs, don’t we need to add back the medical expenses that’s above 10% AGI?

thanks!

[taxgeek83]

We had this discussion in another thread a month or so ago, and this was my take:

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.

So essentially I do two itemized deduction calculations: one for regular tax, and one for AMT.

Does that make sense, or does it answer your question?

P.S. This is the thread if you want to read through it:

https://www.another71.com/cpa-exam-forum/topic/reg-question-help-1

[leglock]

Unfortunately the amt explanations are extremely poorly worded even though it doesnt have to be as it is quite simple.

For amt u r allowed ur medical itemized deduction in excess of 10 percent of ur agi. The addback with respect to medical for amt, meaning the deduction that is not allowed and is therefore added back is when u have an elderly person for instance who gets to deduct medical in exces of 7.5 percent of agi as an itemized deduction in calculating taxable income. For amt ur only allowed to not include/ not addback the amont above 10 percent. Therefore u add back the difference between 10 percent and 7.5 percent of Agi

For amt, most of the itemized deductions and exemption are not allowed so u have to add them back meaning income goes up bc the deductions are not allowed

[Anonymous]

Thank you taxgeek83 & leglock!!

@taxgeek83, that was my thread too:) , yes it is similar to this question. and I do understand the concept you explained. Thanks for putting it in details now.

@leglock, thanks for explaining the medical expense add back. I guess we only do amt add back for age 65 and above for the 2.5% excess AGI? in this case the medical expense of 10%excess AGI is an allowed itemized deduction, and not an amt add back. Now it makes sense.

Thank you!

[taxgeek83]

Oops – I totally missed that it was your thread!! Sorry!! Glad it makes sense now though. 🙂

[Author]

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