25.A, B and C are each single, report wage income of $135,000, and take the stan

Question

25.A, B and C are each single, report wage income of $135,000, and take the standard deduction. The following additional information is provided about each taxpayer. A: Resides in New York. $45,000 interest income from Treasury bonds. B: Resides in Nevada. $45,000 capital gain from the sale of stock. C: Resides in Florida. $45,000 interest income from private-activity municipal bonds. All else being equal and taking into consideration the principles underlying the AMT, which of these taxpayers has the highest likelihood of being subject to the AMT in the current tax year? a.Taxpayer C. b.Taxpayer A. c.Taxpayer D. d.Taxpayer B.

Explanation / Answer

Taxpayer C

RATIONALE: In comparison to Taxpayer A, Taxpayers B and C live in states that do not levy an individual income tax. However, this does not affect the likelihood of being in AMT because all three taxpayers are taking the standard deduction. Both Taxpayer B's capital gain from the sale of stock and Taxpayer A's interest income from Treasury bonds are included in regular taxable income and do not create an AMT adjustment. In contrast, Taxpayer C has a substantial amount of private-activity municipal bond interest income, which creates an AMT preference. Thus, in the given scenario, Taxpayer C has the highest likelihood of being in AMT.

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