Series 7 practice questionmediumTax Implications — AMT
Which of the following is a tax preference item that could trigger the Alternative Minimum Tax (AMT)?
- AInterest on U.S. Treasury bonds
- BInterest on private activity municipal bonds✓ Correct answer
- CQualified dividends from domestic corporations
- DInterest on general obligation municipal bonds
Explanation
Why B — Interest on private activity municipal bonds
Interest on private activity municipal bonds (issued to benefit private entities, such as industrial development bonds) is a tax preference item for AMT purposes. While this interest is exempt from regular federal income tax, it must be added back when calculating AMT. General obligation bonds and essential-purpose revenue bonds are typically exempt from both regular tax and AMT.
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