Minimam Tax Case Study
CHAPTER 13
BUSINESS TAX CREDITS AND
CORPORATE ALTERNATIVE MINIMUM TAX
SOLUTIONS TO PROBLEM MATERIALS
Status: Q/P
Question/ Present in Prior
Problem Topic Edition Edition
1 Limitation on general business credit for Modified 1 individuals 2 General business credit carryovers Modified 2 3 Issue recognition New 4 Rehabilitation expenditures tax credit Unchanged 3 5 Rehabilitation expenditures tax credit Unchanged 4 6 Ethics problem Unchanged 5 7 Work opportunity tax credit Unchanged 6 8 Welfare-to-work credit Unchanged 7 9 Incremental research activities credit Unchanged 8 10 Disabled access credit Modified 9 11 Foreign tax credit Unchanged 10 12 Exemption …show more content…
The substantial rehabilitation requirement provides that a taxpayer must incur rehabilitation expenditures which exceed the greater of (1) the adjusted basis of the property before the rehabilitation ($250,000), or (2) $5,000. Therefore, if Diane chooses to incur only $200,000 on the rehabilitation, this amount would not be enough to qualify as a "substantial rehabilitation" and no credit would be available. The depreciable basis of the property would be the sum of its original cost plus the capital improvements, or $450,000 ($250,000 + $200,000).
If Diane incurs $400,000 for the rehabilitation project, a substantial rehabilitation would result. Therefore, the rehabilitation tax credit available to Diane would be $80,000 ($400,000 X 20%). The depreciable basis of the property, which would be reduced by the full amount of the credit, would be $570,000 [$250,000 (original cost) + $400,000 (capital improvements) - $80,000 (amount of credit)].
pp. 13-7 and …show more content…
The relevant issues are the tax consequences of each of the two proposed transactions for both regular income tax purposes and for AMT purposes. The AMT analysis is relevant only if the AMT applies since the adjustment would be negative. For regular income tax purposes, the sale to Abby in 2003 would result in deferring the reporting of the gain of $20,000 until 2003. This deferral treatment also would apply for AMT purposes (i.e., the realized loss of $5,000 cannot be recognized). If the sale occurred in 2002 to Ed, for regular income tax purposes, the $20,000 realized gain is recognized. However, for AMT purposes, there would be a $25,000 negative adjustment for the difference between the $20,000 gain for regular income tax purposes and the $5,000 loss for AMT
BUSINESS TAX CREDITS AND
CORPORATE ALTERNATIVE MINIMUM TAX
SOLUTIONS TO PROBLEM MATERIALS
Status: Q/P
Question/ Present in Prior
Problem Topic Edition Edition
1 Limitation on general business credit for Modified 1 individuals 2 General business credit carryovers Modified 2 3 Issue recognition New 4 Rehabilitation expenditures tax credit Unchanged 3 5 Rehabilitation expenditures tax credit Unchanged 4 6 Ethics problem Unchanged 5 7 Work opportunity tax credit Unchanged 6 8 Welfare-to-work credit Unchanged 7 9 Incremental research activities credit Unchanged 8 10 Disabled access credit Modified 9 11 Foreign tax credit Unchanged 10 12 Exemption …show more content…
The substantial rehabilitation requirement provides that a taxpayer must incur rehabilitation expenditures which exceed the greater of (1) the adjusted basis of the property before the rehabilitation ($250,000), or (2) $5,000. Therefore, if Diane chooses to incur only $200,000 on the rehabilitation, this amount would not be enough to qualify as a "substantial rehabilitation" and no credit would be available. The depreciable basis of the property would be the sum of its original cost plus the capital improvements, or $450,000 ($250,000 + $200,000).
If Diane incurs $400,000 for the rehabilitation project, a substantial rehabilitation would result. Therefore, the rehabilitation tax credit available to Diane would be $80,000 ($400,000 X 20%). The depreciable basis of the property, which would be reduced by the full amount of the credit, would be $570,000 [$250,000 (original cost) + $400,000 (capital improvements) - $80,000 (amount of credit)].
pp. 13-7 and …show more content…
The relevant issues are the tax consequences of each of the two proposed transactions for both regular income tax purposes and for AMT purposes. The AMT analysis is relevant only if the AMT applies since the adjustment would be negative. For regular income tax purposes, the sale to Abby in 2003 would result in deferring the reporting of the gain of $20,000 until 2003. This deferral treatment also would apply for AMT purposes (i.e., the realized loss of $5,000 cannot be recognized). If the sale occurred in 2002 to Ed, for regular income tax purposes, the $20,000 realized gain is recognized. However, for AMT purposes, there would be a $25,000 negative adjustment for the difference between the $20,000 gain for regular income tax purposes and the $5,000 loss for AMT