This requires an understanding of the items that are not included in the calculation of AMT, but are included in taxable income. Because AMT starts with regular taxable income you need to identify the items in the list that were part of taxable income that will not be part of AMT.
–Both taxable income and AMT allow the medical deductions over the 10% of AGI threshold so you can disregard that one.
–AMT does not allow for real estate tax and state income tax deductions and those were deducted to get regular taxable income so you have to add $18K back to the regular taxable income to get to AMT.
–Regular taxable income allows for a deduction of interest on home equity loans, regardless of how the loan proceeds were used, but AMT only allows interest on loans that were used specifically for purchasing, building, or improving the residence. A motor home is not their residence. Therefore you must add back $15K to the regular taxable income to get to AMT.
–The misc deductions (subject to the 2% threshold) are not allowed for AMT, but are allowed to get to regular taxable income. The tricky part here is the “prior to AGI limitation” note. You have to realize that they are saying $5K was before they deducted the 2% so the deduction amount used to arrive at regular taxable income was only $2,000 = ($5K – ($150K*2%)). You must add the $2K back to the regular taxable income to get to AMT.
You start with taxable income and add those differences back to get to AMT
+18K
+15K
+2K
=$35K added back to AMT
Does that help?
CPA Exam - Finally DONE (November 2014)
BEC (08/10/13) 80
AUD (08/24/13) 65 (11/13/13) 85
FAR (04/12/14) 81
REG (07/19/14) 69 (11/29/14) 87!!
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