Problem 12-44 (LO. 3, 4)

Gabriel, age 40, and Emma, age 33, are married with two dependents. They recorded AGI of $250,000 in 2019 that included net investment income of $3,000 and gambling winnings of $2,500.

The couple the following expenses during the year (all of which resulted in itemized deductions for regular income tax purposes).

Medical expenses (before 10%-of-AGI floor)	$12,000
State income taxes	5,800
Real estate tax	9,100
Interest on personal residence	18,600
Interest on home equity loan (proceeds were used to remodel the couple's kitchen)	9,800
Investment interest expense	4,500
Charitable contributions (cash)	14,200

If an amount is zero, enter "0".

a. Enter Gabriel and Emma's regular income tax itemized deductions; AMT itemized deductions; the net amount of adjustments (if any) and if the adjustment is a positive or negative adjustment.

	Regular Income Tax		AMT Purposes		Amount of Adjustment	Positive, Negative, or None
Medical expenses	$		$		$	None
State income and real estate taxes						Positive
Interest on residence						None
Interest (home equity)						None
Investment interest						None
Charitable contributions						None
Totals	$		$		$	Positive

Feedback

Most adjustments relate to timing differences that arise because of separate regular income tax and AMT treatments. Adjustments that are caused by timing differences will eventually reverse; that is, positive adjustments will be offset by negative adjustments in the future, and vice versa.

b. Gabriel and Emma also earned interest of $5,000 on private activity bonds that were issued in 2014. They borrowed money to buy these bonds and paid interest of $3,900 on the loan. What is the effect on AMTI?

The effect of this transaction is a tax preference of $___________. However, considering the transactions in part (a) as well as the transaction above, the taxpayers will have a positive total AMT adjustment of $_________________.