Question

Betty is age 34 and has AGI of $50,000. The following items may qualify as itemized deductions for Betty:

Qualified medical expenses (before percentage of AGI floor)$3,000
Real estate tax$1,200
State income tax$ 800
Charitable contributions$ 600
Mortgage interest on acquisition indebtedness$2,000
Home equity interest on a loan used to improve the home$ 300
What are the itemized deductions allowed for the AMT?

Answer 1

For the AMT, Betty can itemize deductions for qualified medical expenses (above 7.5% AGI), charitable contributions, and mortgage interest, but state income tax and real estate tax are disallowed.

Step-by-step explanation:

When deciding on whether to itemize deductions on your tax return, it's essential to understand which deductions are allowed for the alternative minimum tax (AMT). For Betty, with an AGI of $50,000, her potential itemized deductions include qualified medical expenses, real estate tax, state income tax, charitable contributions, mortgage interest on acquisition indebtedness, and home equity interest. Considering AMT preferences, certain deductions like state income tax, and property taxes (including real estate tax) are disallowed for AMT. Therefore, for the AMT, Betty's itemized deductions will include her medical expenses (to the extent they exceed 7.5% of AGI), charitable contributions, and mortgage interest on acquisition indebtedness, including home equity loan interest used to improve her home.