Question

Q3: Which of the following are tax preference items for purposes of computing the individual AMT?

a. Net long-term capital gain

b. Excess depreciation for real property placed in service before 1987

c. Straight-line depreciation on residential real estate acquired in 1992

d. Appreciated portion of the value of capital gain real property contributed to charity

Q4:Which of the following are individual AMT adjustments?

a. Itemized deductions that are allowed for regular tax purposes but not allowed in computing AMTI.

b. Excess of MACRS depreciation over depreciation computed under the alternative depreciation system for real property placed in service after 1986 and before 19

C. Excess of MACRS depreciation over depreciation computed under the alternative depreciation system for personal property placed in ser-vice after 1986.

d. Tax-exempt interest earned on State of Michigan bonds.

Q17: What types of business property qualify for the business energy credit?

Q24: The adoption credit is intended to assist taxpayers with the financial burden of adopting children. a. Discuss how the credit is computed. b. Why did Congress impose a phase-out of the credit for taxpayers based on AGI

Q26: Why are most elderly people unable to qualify for the tax credit for the elderly?

Q31: Although Virginia is entitled to five personal and dependency exemptions on her income tax re-turn, she claims only one withholding allowance on Form W

a. Is it permissible to claim fewer allowances than an individual is entitled to?

b. Why would an individual claim fewer allowances?

c. Is it possible for Virginia to claim more than five withholding allowances

Answer 1

Q3) The following are tax preference items for purposes of computing the individual AMT:

• Depletion
• Interest on private activity bonds
• Accelerated depreciation on property placed in service before 1987
• Exclusion of gain on qualified small business stock

So "Excess depreciation for real property placed in service before 1987" is the preference item.

Q4) The following are individual AMT adjustments:

• The limitation on overall itemized deductions
• Miscellaneous itemized deductions subject to the 2% floor
• Standard deduction and personal exemptions
• Certain state, local and foreign taxes. Medical expenses
• Certain interests (including home mortgage and investment interest)
• Incentive Stock Option (ISO) exercises Depreciation deduction
• Mining exploration and development costs
• Long-term contract expenses
• Alternative tax net operating losses
• Amortization deductions for pollution control facilities
• Gain or loss on the disposition of property
• Circulation expenses
• Research and experimental expenses.

a) Itemized deductions that are allowed for regular tax purposes but not allowed in computing AMTI are alternative tax adjustments.

b) If real property is placed into service after 1986, the excess MACRS depreciation is an AMT adjustment. Therefore, excess of MACRS depreciation over depreciation computed under the alternative depreciation system for real property placed in services after 1986 and before 19 is an AMT adjustment.

c) If the personal property is placed into service after 1986, the excess MARCSdepreciation is ATM adjustment. Therefore, excess of MACRS depreciation over depreciation computed under the alternative depreciation system for real property placed in services after 1986 and before 1999 is an AMT adjustment.

Q17) Types of business property qualify for the business energy credit:

An energy credit is allowed for 10% of the cost of the following types of business property placed in service during the year:

• equipment that uses solar energy to generate electricity, heat or cool a structure, provide hot water, or provide solar process heat; or
• equipment used to produce, distribute, or use geothermal energy stored in rocks, water, or steam.
• The property is depreciable, amortized and used in the course of your business.

Business energy tax credits are part of general business credit. Energy tax credits are issued based on the carry forward of business credits from the prior year, plus the total of your current year business credits.

Energy credit is available when the following eligible technologies are used in the business:

• Solar technology
• Fuel cells
• Small wind turbines
• Geothermal systems
• Microturbines
• Combined heat and power (CHP)

The tax credit for solar, fuel cells and small wind technologies is up to 30%.

Q24) The adoption credit is intended to assist taxpayers with the financial burden of adopting children.

The tax code provides an adoption credit of up to $ 14,080 (for 2019) of qualified expenses for each child adopted.

a. Computation of adoption credit:

One must adopt an eligible child and pay qualified adoption expenses out of pocket to claim the adoption credit. Qualified adoption expenses are calculated by including all the expenses related to the adoption, then deducting any amounts reimbursed or paid for by the employer, or a government agency, or another organization.

Adoption expenses include adoption fees, legal fees, court costs, travel expenses and all other costs that are directly related to the adoption which is reasonable and necessary for such adoption.

b. Why did Congress impose a phase-out of the credit for taxpayers based on AGI

Adoption credit is subject to a phaseout, for tax year 2019, the modified adjusted gross income (MAGI) phaseout begins at $ 211,160 and ends at $ 251,160. Thus, if MAGI is below $ 211,160, credit or exclusion won't be affected by the MAGI phaseout and adoption credit is not available if MAGI exceeds $ 251,160 for 2019. Phaseout is included to control the amount of available credit for high earning taxpayers.

Q26) Why are most elderly people unable to qualify for the tax credit for the elderly?

Requirements to Qualify the Elderly and Disabled Tax Credit:

• person must be a U.S. citizen or resident alien
• person must be 65 years of age as of December 31, 2019, for tax year 2019
• person is retired on disability before Dec. 31, 2019, and was permanently and disabled at the start of retirement
• person is under age 65 but retired on total and permanent disability and received taxable disability income, but has not yet reached mandatory retirement age as of Jan. 1, 2020 or the new tax year.
• person must obtain a physician's certification stating the disability
• taxable income and non-taxable income of such person must be below the specified limits.

Q31) Virginia is entitled to five personal and dependency exemptions on her income tax return, she claims only one withholding allowance on Form W

a. We can claim as many or as few allowances as you want. But fewer allowances will decrease the take-home pay.

b. To get exemption from making estimated quarterly tax payment and to get the refund of tax paid.

c. If she is eligible to claim more allowances, then she can claim more than five. Otherwise claiming more allowances might result in underpayment of taxes. This might result in the payment of the penalty.