Question

In 2019, Deon and NeNe are married filing jointly. Deon and NeNe’s taxable income is $1,190,000, and they itemize their deductions as follows: real property taxes of $17,700, charitable contributions of $24,250, and mortgage interest expense of $48,400 ($700,000 acquisition debt for home). Use Exhibit 8-5 and Tax Rate Schedule for reference.

rev: 02_29_2020_QC_CS-202942

a. What is Deon and NeNe's AMT?

**** This is incorrect : Taxable Income       1,190,000Less:Charitable contributions            24,250Mortagage Interest Expense            48,400           (72,650)       1,117,350Less:AMT Exemption           111,700AMT base       1,005,650AMT=AMT*26%           261,469*****

Answer 1

Calculating Alternative Minimum Tax

Taxable income = $1,190,000

Less :

Charitable contribution = $24,250

Mortgage interest expense = $48,400

Personal property taxes = $10,000 (only upto $10,000 is deductible as per IRS) (Topic 503 of deductible taxes & Topic 501 of limitations)

Alternative Minimum Tax Income = $1,107,350

(In general we have to deduct the exemption limit of $111,700 available for Jointly filing married couple, but as the income exceeded $1 million there will be no AMT exemption)

Alternative Minimum Tax = $1,107,350 x 28% (higher rate is applicable, not 26%) = $310,058