AMT Adjustments and Preferences

1
AMT Adjustments and Preferences

• Alternative Minimum Tax
• Capital University Law School
• Fall 2005
• William A Raabe, PhD, CPA

2
Adjustments for All Taxpayers

• Depreciation
• AMT restricted to ADS schedule
• Straight line, class life (5/7/40 years),
  w/conventions
• Special problems 179, 168(k), 280F
• Post 98 AMT uses MACRS, except 150 DB on TPP
• Switch over point Planning for later years of
  holding
• Other planning Leasing, merger results, other
  methods of depreciation
• Amortization of Pollution Control Facility
• AMT SL over MACRS class life
• Regular Sixty month amortization

3
AMT Adjustments

• Mining Exploration and Development
• Regular Expense, capitalize and deplete, or 10
  year straight line (to match AMT method)
• Adjusted Basis, Gain/Loss
• Important on asset disposition
• Carryover AMT basis gift, 351, 721
• Remember to use up MTC as quickly as possible
• Wash sale, related party disallowance rules apply
  to AMT losses as well

4
AMT Adjustments

• Long Term Contracts
• Only percentage of completion method allowed for
  AMT
• Small contractors, residential contracts still
  allowed to use completed contract method for
  regular tax
• Passive Activities
• AMT has similar disallowance and basket rules,
  but with respect to AMT passive inc/loss, ie
  using AMT depreciation, interest, etc rules

5
AMT Adjustments

• AMT NOL Deductions
• Carryovers, election to waive carryback
• Waive carryback if it wastes the AMT exemption
• Separate carryover accounting for AMT NOLs
• AMT NOL carryover using up the MTC
• Tax rates in loss year, carryover years
• Deferring a carryover due to the 90 limit
• AMT versions of 382 limitations
• Consolidated groups 382 overrides SRLY rules

6
AMT Preferences

• Depletion
• Regular tax greater of cost or percentage
  depletion
• AMT preference Excess of depletion over asset
  basis ? Need for long range tax plan
• Use AMT basis for the property
• Not a preference for independent oil/gas producers

7
AMT Preferences

• Intangible Drilling Costs
• Regular tax expense or capitalize
• AMT preference IDC deducted IDC using 10
  year amortization 65 Net income from oil/gas
• AMT preference only for an integrated oil company
  (ie not an independent producer), unless
  preference gt 40 AMTI
• No preference if taxpayer uses 60 month
  amortization for regular tax. Election made by
  partner, member, S shareholder

8
AMT Preferences

• Interest on Private Activity Municipal Bond
• Regular tax no gross income, no related
  deductions
• AMT Deductions allowed
• Higher yield, so still may be good investment
• Exclusion for Gain on Small Business Stock
• Regular tax exclude half the gain, up to 10M
• AMT Preference 7 of the excluded amount