Pat, who is age 66 and single with no dependents, received a salary of $90,000 i
ID: 2562159 • Letter: P
Question
Pat, who is age 66 and single with no dependents, received a salary of $90,000 in 2017. She earned interest income of $1,000, dividend income of $5,000, gambling winnings of $4,000, and interest income from private activity bonds (issued in 2014) of $40,000. The dividends are not qualified dividends. The personal exemption is $4,050. The following additional information is relevant.
a. Compute Pat's taxable income and AMTI.
b. Determine if Pat's AMT exemption will be limited.
His tentative exemption of $__________ is ______ (Choose: Increased or Phased Out) at a rate of 25 cents on the dollar when AMTI exceeds $ ________.
If required, round amounts to the nearest dollar.
Medical expenses (before 10%-of-AGI floor State income taxes Real estate taxes Mortgage interest on residence Investment interest expense Gambling losses $12,000 4,100 2,800 3,100 1,800 5,100Explanation / Answer
Salary $90,000 Interest income $1,000 Dividend income $5,000 Gambling winning $4,000 Adjusted gross income $100,000 Less: Itemized deductions Medical expenses ($12,000 ? $10,000) $2,000 State income taxes $4,100 Real estate taxes $2,800 Mortgage interest on residence $3,100 Investment interest expense $1,800 Gambling losses (limited to gambling winnings) $4,000 Total itemized deductions -$17,800 Less: Personal exemption -$4,050 Taxable income $78,150 Taxable income (before personal exemption) $82,200 Add: Adjustments Medical Expenses: $2,500 Regular income tax [$12,000 ? (10% × $100,000) = $2000] AMT [$12,000 ? (12.5% × $100,000) = $2,000] = -500 State income taxes $4,100 Real estate taxes $2,800 Add: Preference (interest on private activity bonds) $40,000 Alternative minimum taxable income (AMTI) $131,600 b)Determine if Pat's AMT exemption will be limited. His tentative exemption of $54,300 is Phased Out at a rate of 25 cents on the dollar when AMTI exceeds $120,700. Computation of AMT base and Tax Alternative minimum taxable income (AMTI) $131,600 Less: Exemption [$54,300 ? 25%($131,600 ? $120,700)] -$51,575 AMT base $80,025 Multiplied by: AMT rate 26.00% Tentative AMT $20,806.5