Question

On their Form 1040 for 2019, Mr. and Mrs. Watermelon reported alternative minimum taxable income of $1,148,340 before any exemption. What is their AMT exemption?

• $31,935

• $109,400

• None of the above

Answer 1

As per the AMT rules an assessee filing return jointly, will get an exemption of $111,700 from the total taxable. Provided if the income of assessee is more than $1,020,600 then exemption to be reduced by 2% for every $2,500 increase in the total taxable income.

Mr. and Mrs. Watermelon's reported AMT is $1,148,340 which is $127,740 higher than exemption phase out limit i.e. $1,020,600.

Accordingly exemption worked out is $109,150 calculated as

= 127,740/2,500 = 51.096

Means 51*2,500 = 127,500

So 2% of 127,500 = $2,550

Reducing 2,550 from 111,700 worked out to be $109,150.

Correct answer is none of the above.