Question

Pat is 40, is single, and has no dependents. She received a salary of $390,000 in 2018. She earned interest income of $11,000, dividend income of $15,000, gambling winnings of $14,000, and interest income from private activity bonds (issued in 2015) of $40,000. The dividends are not qualified dividends.

The following additional information is relevant.

Medical expenses (before 7.5%-of-AGI floor) $12,000

State income taxes 8,100

Real estate taxes 4,000

Mortgage interest on residence 13,100

Investment interest expense 3,800

Gambling losses 5,100

a. Compute Pat's taxable income and AMTI. Taxable Income Computation Adjusted gross income $ 430,000 Itemized deductions Taxable income $ AMTI Computation Taxable income $ Add: itemized deductions adjustments Add: income tax preference items AMTI $ Feedback The purpose of the AMT formula is to reconcile taxable income to AMTI. The reconciliation of taxable income to AMTI is accomplished by entering reconciling items to account for differences between regular income tax provisions and AMT provisions. These reconciling items are referred to as AMT adjustments or tax preferences.

b. Compute Pat's tentative minimum tax. If required, round amounts to the nearest dollar. Computation of AMT Base and Tax AMTI $ AMT exemption AMT base $ Tentative AMT $

Answer 1

Part 1

Taxable income computation

Salary		$390,000
Interest income		11,000
Dividend income		15,000
Gambling income		14,000
Adjusted gross income		430000
Itemized deductions:
Medical expenses ($12,000 – (7.5%*430000))	0
State income taxes	8,100
Real estate taxes	4,000
Mortgage interest on residence	13,100
Investment interest expense	3,800
Gambling losses	5,100
Total itemized deductions		34100
Taxable income		395900

Part 2

Tentative minimum tax computation

Taxable income	395900
Plus adjustments:
Medical expenses	0
State income taxes	8,100
Real estate taxes	4,000
Subtotal	408000
Plus: Preference (interest on private activity bonds)	40,000
Alternative minimum taxable income (AMTI)	448000
Exemption [$70300 – 25%($448000-191500)]	(6175)
AMT base	441825
AMT rate	28%
Tentative AMT	123711