Which is NOT a tax preference or adjustment item for AMT purposes?

Which is NOT a tax preference or adjustment item for AMT purposes?

• A. Excess intangible drilling costs
• B. Tax-exempt interest on qualified private-activity municipal bonds issued in 2008
• C. Charitable contributions deduction
• D. Bargain element on the exercise of an incentive stock option

Answer: (C)

The key idea is that the AMT adds back or adjusts specific items that are considered preferences or adjustments, increasing your alternative minimum taxable income. Not all regular-tax deductions become AMT issues. Among the options, only the first, second, and fourth represent items that are treated as AMT adjustments or preferences: excess intangible drilling costs (those exceeding what is allowed under AMT rules), tax-exempt interest from private-activity municipal bonds issued in 2008 (a classic AMT preference item), and the bargain element from exercising incentive stock options (an AMT adjustment). Charitable contributions, while they affect regular taxable income through an itemized deduction, are not itself a separate AMT preference or adjustment item; they are not added back to AMTI in the same way. Therefore, charitable contributions deduction is not an AMT preference or adjustment item.

The key idea is that the AMT adds back or adjusts specific items that are considered preferences or adjustments, increasing your alternative minimum taxable income. Not all regular-tax deductions become AMT issues. Among the options, only the first, second, and fourth represent items that are treated as AMT adjustments or preferences: excess intangible drilling costs (those exceeding what is allowed under AMT rules), tax-exempt interest from private-activity municipal bonds issued in 2008 (a classic AMT preference item), and the bargain element from exercising incentive stock options (an AMT adjustment). Charitable contributions, while they affect regular taxable income through an itemized deduction, are not itself a separate AMT preference or adjustment item; they are not added back to AMTI in the same way. Therefore, charitable contributions deduction is not an AMT preference or adjustment item.