B) $2,250. C) $2,500. D) $3,000. Answer: B Explanation: B) The credit is 100% of the first $2,000 and 25% of the next $2,000 of educational expenses. The scholarship reduces the amount deemed paid by Timothy and Alice to $3,000. [($2,000 × 100%) + ($1,000 × 25%) = $2,250]. Page Ref.: I:14-14 and I:14-15 18 In the fall of the current year, James went back to school to earn a master of accountancy degree. He incurred $7,000 of qualified educational expenses and his modified AGI for the year was $40,000. His Lifetime Learning Credit is A) $1,000. B) $1,400. C) $1,800. D) $2,500. Answer: B Explanation: B) The lifetime learning credit applies to qualified tuition and related expenses incurred beyond the first four years of college and is computed as 20% of expenses up to $10,000. ($7,000 × 20% = $1,400) Page Ref.: I:14-15 Learning Objective 5. AMT 19 An example of a tax preference item that must be added to taxable income when computing AMTI would be: a. Percentage depletion in excess of the adjusted basis in property b. 7% of the excluded portion of gains from the sale of certain small business stock c. Tax-exempt interest on certain private activity bonds *d. All of the above 20 Which of the following is allowed when computing AMTI for individuals? a. Standard deduction b. Personal exemptions *c. Charitable contributions d. Real estate taxes
21 When tentative minimum tax exceeds the taxpayer's regular tax liability, the excess represents the taxpayer's: a. Net income tax *b. Alternative minimum tax (AMT) c. Total income tax liability d. None of the above 22 In computing the alternative minimum taxable income, no deduction is allowed for A) alimony. B) moving expenses. C) personal exemptions. D) individual retirement account contributions. Answer: C Explanation: C) Personal and dependency exemptions are added back to taxable income to get alternative minimum taxable income. Page Ref.: I:14-4 Key Point 23 All of the following are allowable deductions under the alternative minimum tax except A) charitable contributions. B) gambling losses. C) qualified housing interest. D) personal property taxes. Answer: D Explanation: D) Charitable contributions, qualified housing interest, and gambling losses are all itemized deductions that are allowed for AMT purposes. Personal property taxes are not. Page Ref.: I:14-4 and I:14-5 24 Suzanne, a single taxpayer, has the following tax information for the current year. • Charitable contribution of real property with a FMV of $25,000 (adjusted basis $20,000) for which a $25,000 deduction was taken. • Research and experimental expenses of $40,000 deducted in full for regular tax. Suzanne's total tax preferences and adjustments equals A) $5,000. B) $36,000. C) $41,000. D) $45,000. Answer: B Explanation: B) $36,000 (the difference between expensing R and E and amortizing the expenditure over a 10 year period).
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