Agrred. Becker's explanation is terrible for this. Once you're given a problem you feel lost so it takes time to adjust.
Individual AMT:
PANIC – adjustments. These adjustments can increase or decrease AMT.
P – passive activity losses: add back or recalculate
A – accelerated depreciation: real property is different under regular tax and 40 years SL; personal property is difference between regular tax and 150% DL)
N – Net operating losses: recompute these
I – Installment sales not allowed: difference is installment method and full accrual method
C – Completed contract not allowed: must use % of completion. Difference between these two
TIMME – These are your itemized deductions
T – Taxes: ADD BACK TAXES
I – only interest that is okay is mortgage (used to build or improve) anything else ADD BACK
M – Medical deductions must be in excess of 10% of AGI to deduct (same as an itemized deduction really…)
M – Misc deductions in excess of 2% AGI ADD BACK (these are not allowed under AMT)
E – Cannot take any exemptions or standard deduction
Do all of these calculations and you can see why the AMT is higher. If you really think about it conceptually this is the purpose of AMT… With the 1986 tax act there was a lot of controversy of a tax designed to target rich investors that was recapturing your middle class family deductions… Think about it. Taxes we all have. Interest a lot of us have. Misc deductions… exemptions… This thinking really helped me hammer down the individual AMT.
FACCE it – FACCE it you can take these credits!
F – foreign tax credit
A – adoption credit
C – Contribution to retirement credit
C – Child credit
E – Earned Income Credit
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