Accredited Wealth Management Advisor Practice Exam

Which of these is NOT a preference item for the individual alternative minimum tax?

1. Interest from a qualified private-activity municipal bond

2. The excess of percentage depletion over the property's adjusted basis

3. Excess intangible drilling costs

4. Investment interest in excess of net investment income

The correct answer is: Investment interest in excess of net investment income

The individual alternative minimum tax (AMT) has specific preference items that can affect a taxpayer's AMT calculation. The correct choice, which is not considered a preference item, is related to the treatment of investment interest. Investment interest, which pertains to interest that can be deducted, is only deductible to the extent of net investment income. This deduction does not constitute a preference item for AMT purposes because it does not create a disparity between regular tax and the alternative minimum tax. Instead, it is subject to the same rules as under regular tax provisions, maintaining consistency in treatment across both tax systems. In contrast, the other choices listed, such as the interest from qualified private-activity municipal bonds, the excess of percentage depletion over the property's adjusted basis, and excess intangible drilling costs, are recognized as preference items. These preferences could lead to a higher AMT liability because they allow for deductions or exclusions that reduce taxable income under the regular tax system but are added back into income when calculating AMT. Therefore, selecting investment interest in excess of net investment income as the correct answer aligns with the treatment of preference items in the AMT framework.