|The AMT Advisor
|Answers to All Your Alternative Minimum Tax Questions
In calculating alternative minimum taxable income (AMTI), in addition to adding
back or subtracting AMT adjustment items (Code Sec. 56), under Code Sec.
57, taxpayers must add back certain AMT preference items. The AMT
preference items are:
Excess Intangible drilling costs
Interest on private activity bonds
Accelerated depreciation on property placed in service before 1987
Exclusion of gain on qualified small business stock.
Preference items, unlike adjustment items (discussed here), are always add
backs in calculating AMTI. The items are added back to income on page 1 of
Form 6251. Many, if not most, individual taxpayers will only have AMT
preference items that are passed through to them from partnerships, LLCs, or
S Corporations as reported on a Schedule K-1.
If a taxpayer’s Code Sec. 611 deduction for depletion for a year is greater
than the adjusted basis of the property being depleted, the difference is
added back as a preference on Form 6251, line 9. This rule does not apply to
depletion claimed by oil and gas independent producers and royalty owners
under Code Sec. 613A(c).
Excess intangible drilling costs
The amount of the excess of intangible drilling costs paid or accrued for oil,
gas, or geothermal wells allowed as a deduction for regular tax purposes over
the amount of these costs that would be allowed if the costs had been
capitalized and recovered using a straight line basis, is added back as a
preference item on Form 6251, line 26.
Interest on specified private activity bonds
Interest on specified private activity bonds, which is excluded from income for
regular tax is added back as a preference item on Form 6251, line 12. The
amount added back is reduced by any deduction attributable to the bonds
which would have been allowable if the interest were includible in gross
income for regular tax.
Accelerated depreciation or amortization on property placed in
service before January 1, 1987
The amount of accelerated depreciation or amortization on property placed in
service before January 1, 1987 in excess of the amount that would be allowed
if straight line depreciation was used is added back as a preference on Form
6251, line 27 (Other Adjustments). This adjustment generally only applies to
property that was placed in service after January 1, 2007 but is being
depreciated under the pre-1987 rules due to the transitional provisions of the
Tax Reform Act of 1986.
Exclusion of gain on the sale of qualified small business stock
For regular tax purposes, taxpayers under certain circumstances can exclude
some or all of the gain on the sale of qualified small business stock (QSBS)
from taxable income (Code Sec. 1202). For AMT, 7% of the gain on QSBS
that is excluded under Code Sec. 1202 is added back as a preference item on
Form 6251, line 13. Currently, after December 31, 2012, the preference
amount is scheduled to change to 42 % of the gain on the sale of QSBS with
a holding period beginning before 2001 and 28% of the gain on the sale of
QSBS with a holding period beginning after 2000.
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What is the AMT?
Minimum Tax Credit
26%, up to Alternative
Income of $179,500
($89,750 for Married
28% on AMTI over
$179,500 ($89,750 for