Question

Alternative Minimum Tax for Individuals

Alex (age 35) is a single taxpayer with no dependents. During 2018, Alex earned a salary of $610,000. He also had the following income and expenses:

        Interest from State of New Hampshire bonds

                (private activity bond)                                       $63,700

        Interest from Primco corporate bonds                         $26,000   

            Medical Expenses (all expenses were unreimbursed)                   $79,500

            Home mortgage interest                                                             $13,500

                        (the face value of the mortgage loan was $670,000)                    

            State Income Taxes                                                                     $7,200

            Local Real Estate Taxes                                                              $6,600

            Charitable contributions                                                                       

                                                                                             Cash   $12,900

                                                   Painting contributed to museum   fmv $7,400

                                                                                                   basis $4,800

                                                                  (the painting was purchased in 2014)

            IRA contribution                                                                        $5,500

                        (Alex is not covered by an employer plan)

In addition to the above items, Alex also received some incentive stock options from his employer. The options entitled Alex to purchase 4,000 shares of stock in his employer. Alex decided to exercise all of these options in 2018 and acquire the 4,000 shares. The exercise price when he acquired the shares was $32/share. The fair market value of the shares on this date was $41/share. After exercising the rights, Alex continued to hold the new shares and did not sell any of the shares during 2018.

Required: Determine if Alex is subject to the alternative minimum tax (show all calculations). If Alex is subject to the AMT, determine the amount of their alternative minimum tax.

                                       

Answer 1

Income:

Interest from private activity bonds = $63,700

Interest from Primco corporate bonds = $26,000

Adjusted Gross Income = $63,700 + $26,000 = $89,700

Expenses:

Medical Expenses = $79,500

Home mortgage interest = $13,500

State Income Taxes = $7,200

Local real estate taxes = $6,600

Charitable contributions (cash) = $12,900

Charitable contributions (painting) = Purchase price - Adjustment basis = $5,500 - $4,800 = $700

Total Expenses = $79,500 + $13,500 + $7,200 + $6,600 + $12,900 + $700 = $120,400

Taxable income = Adjusted Gross Income - Total Expenses

= $89,700 - $120,400 = -$30,700... Expenses are more than income, so there is no liability to pay any tax.