Schedule I - Alternative Minimum Tax

Changes To Note

• We have simplified Schedule I for 2002 by eliminating 5 lines.
• The Job Creation and Worker Assistance Act of 2002 made the following changes that affect tax years ending in 2001 or 2002.
  1. A special deduction allowance applies to qualified property placed in service after September 10, 2001. No alternative minimum tax adjustment (AMT) is required for any property that qualifies for the special allowance. See What depreciation is not refigured for the AMT? on page 24.
  2. The deduction for an alternative tax net operating loss (ATNOL) carried forward to a tax year ending in 2001 or 2002, or arising in a tax year ending in 2001 or 2002 and carried back to a prior tax year, is not limited to 90% of alternative minimum taxable income (figured without regard to the ATNOL deduction). See the instructions for line 24 on page 27.

Note:   If these changes affect the estate's or trust's AMT liability for its tax year ending in 2001 or 2002, and the estate's or trust's tax return has already been filed, you must file an amended return.

General Instructions

Use Schedule I to compute:

1. The estate's or trust's alternative minimum taxable income;
2. The income distribution deduction on a minimum tax basis; and
3. The estate's or trust's alternative minimum tax (AMT).

Who Must Complete

• Complete Schedule I, Parts I and II, if the estate or trust is required to complete Schedule B.
• Complete Schedule I if the estate's or trust's share of alternative minimum taxable income (Part I, line 29) exceeds $22,500.
• Complete Schedule I if the estate or trust claims a credit on line 2b, 2c, or 2d of Schedule G.

Recordkeeping

Schedule I contains adjustments and tax preference items that are treated differently for regular tax and AMT purposes. If you, as fiduciary for the estate or trust, completed a form to figure an item for regular tax purposes, you may have to complete it a second time for AMT purposes. Generally, the difference between the amounts on the two forms is the AMT adjustment or tax preference item to enter on Schedule I. Except for Form 1116, any additional form completed for AMT purposes does not have to be filed with Form 1041.

For regular tax purposes, some deductions and credits may result in carrybacks or carryforwards to other tax years. Examples are: investment interest expense; a net operating loss deduction; a capital loss; and the foreign tax credit. Because these items may be refigured for the AMT, the carryback or carryforward amount may be different for regular and AMT purposes. Therefore, you should keep records of these different carryforward and carryback amounts for the AMT and regular tax. The AMT carryforward will be important in completing Schedule I for 2003.

Credit for Prior Year Minimum Tax

Estates and trusts that paid alternative minimum tax in 2001, or had a minimum tax credit carryforward, may be eligible for a minimum tax credit in 2002. See Form 8801.

Partners, Shareholders, etc.

An estate or trust that is a partner in a partnership or a shareholder in an S corporation must take into account its share of items of income and deductions that enter into the computation of its adjustments and tax preference items.

Allocation of Deductions to Beneficiaries

The distributable net alternative minimum taxable income (DNAMTI) of the estate or trust does not include amounts of depreciation, depletion, and amortization that are allocated to the beneficiaries, just as the distributable net income (DNI) of the estate or trust does not include these items for regular tax purposes.

Report separately on line 12 of Schedule K-1 (Form 1041) any adjustments or tax preference items attributable to depreciation, depletion, and amortization that were allocated to the beneficiaries.

Optional Write-Off for Certain Expenditures

There is no AMT adjustment for the following items if the estate or trust elects to deduct them ratably over the period of time shown for the regular tax:

• Circulation expenditures - 3 years (section 173).
• Research and experimental expenditures - 10 years (section 174).
• Intangible drilling costs - 60 months (section 263(c)).
• Mining exploration and development costs - 10 years (sections 616(a) and 617(a)).

The election must be made in the year the expenditure was made and may be revoked only with IRS consent. See section 59(e) for more details.

Specific Instructions

Part I - Estate's or Trust's Share of Alternative Minimum Taxable Income

Line 1 - Adjusted Total Income or (Loss)

Enter the amount from line 17 of page 1. If the adjusted total income includes the amount of the alcohol fuel credit as required under section 87, reduce the adjusted total income by the credit included in income.

Line 2 - Interest

In determining the alternative minimum taxable income, qualified residence interest (other than qualified housing interest defined in section 56(e)) is not allowed.

If you completed Form 4952 for regular tax purposes, you may have an adjustment on this line. Refigure your investment interest expense on another Form 4952 as follows:

Step 1. On line 1 of Form 4952, add any interest expense allocable to specified private activity bonds issued after August 7, 1986, to the other interest expense. For a definition of specified private activity bonds, see the instructions for line 8.

Step 2. On line 2, enter the AMT disallowed investment interest expense from 2001.

Step 3. When completing Part II of Form 4952, refigure gross income from property held for investment, any net gain from the disposition of property held for investment, and any investment expenses, taking into account all AMT adjustments and tax preference items that apply. Include any interest income and investment expenses from private activity bonds issued after August 7, 1986.

To figure the adjustment for line 2, subtract the total interest allowable for AMT purposes from the interest deduction claimed on line 10 of page 1. If the total interest expense allowed for AMT purposes is more than that allowed for regular tax purposes, enter the difference as a negative amount on line 2.

Line 3 - Taxes

Enter any state, local, or foreign real property taxes; state or local personal property taxes; and state, local, or foreign income taxes that were included on line 11 of page 1.

Line 5 - Refund of Taxes

Enter any refunds received in 2002 of taxes described for line 3 above that were deducted in a tax year after 1986.

Line 6 - Depletion

Refigure the depletion deduction for AMT purposes by using only the income and deductions allowed for the AMT when refiguring the limit based on taxable income from the property under section 613(a) and the limit based on taxable income, with certain adjustments, under section 613A(d)(1). Also, the depletion deduction for mines, wells, and other natural deposits under section 611 is limited to the property's adjusted basis at the end of the year, as refigured for the AMT, unless the estate or trust is an independent producer or royalty owner claiming percentage depletion for oil and gas wells. Figure this limit separately for each property. When refiguring the property's adjusted basis, take into account any AMT adjustments made this year or in previous years that affect basis (other than the current year's depletion).

Enter on line 6 the difference between the regular tax and AMT deduction. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.

Line 7 - Net Operating Loss Deduction

Enter any net operating loss deduction (NOLD) from line 15a of page 1 as a positive amount.

Line 8 - Interest From Specified Private Activity Bonds Exempt From the Regular Tax

Enter the interest earned from specified private activity bonds reduced (but not below zero) by any deduction that would have been allowable if the interest were includible in gross income for regular tax purposes. Specified private activity bonds are any qualified bonds (as defined in section 141) issued after August 7, 1986. See section 57(a)(5) for more information.

Exempt-interest dividends paid by a regulated investment company are treated as interest from specified private activity bonds to the extent the dividends are attributable to interest received by the company on the bonds, minus an allocable share of the expenses paid or incurred by the company in earning the interest.

Line 9 - Qualified Small Business Stock

If the estate or trust claimed the exclusion under section 1202 for gain on qualified small business stock, multiply the amount of the gain excluded from income (as shown on line 6 of Schedule D (Form 1041)) by 42% (.42). Enter the result as a positive number.

Line 10 - Exercise of Incentive Stock Options

For regular tax purposes, no income is recognized when an incentive stock option (as defined in section 422(b)) is exercised. However, this rule does not apply for AMT purposes. Instead, the estate or trust must generally include on line 10 the excess, if any, of:

1. The FMV of the stock acquired through exercise of the option (determined without regard to any lapse restriction) when its rights in the acquired stock first become transferable or when these rights are no longer subject to a substantial risk of forfeiture, over
2. The amount paid for the stock, including any amount paid for the option used to acquire the stock.

Note:   Even if the estate's or trust's rights in the stock are not transferable and are subject to a substantial risk of forfeiture, you may elect to include in AMT income the excess of the stock's FMV (determined without regard to any lapse restriction) over the exercise price upon the transfer to the estate or trust of the stock acquired through exercise of the option. See section 83(b) for more details. The election must be made no later than 30 days after the date of transfer.

If the estate or trust acquired stock by exercising an option and it disposed of that stock in the same year, the tax treatment under the regular tax and the AMT is the same, and no adjustment is required.

Increase the AMT basis of any stock acquired through the exercise of an incentive stock option by the amount of the adjustment.

Line 11 - Other Estates and Trusts

If the estate or trust is the beneficiary of another estate or trust, enter the adjustment for minimum tax purposes from line 9, Schedule K-1 (Form 1041).

Line 12 - Electing Large Partnerships

If the estate or trust is a partner in an electing large partnership, enter on line 12 the amount from Schedule K-1 (Form 1065-B), box 6. Take into account any amount from Schedule K-1 (Form 1065-B), box 5, when figuring the amount to enter on line 15.

Line 13 - Disposition of Property

Use this line to report any AMT adjustment related to the disposition of property resulting from refiguring:

1. Gain or loss from the sale, exchange, or involuntary conversion of property reported on Form 4797, Sales of Business Property;
2. Casualty gain or loss to business or income-producing property reported on Form 4684, Casualties and Thefts;
3. Ordinary income from the disposition of property not taken into account in 1 or 2 above or on any other line on Schedule I, such as a disqualifying disposition of stock acquired in a prior year by exercising an incentive stock option; and
4. Capital gain or loss (including any carryover that is different for the AMT) reported on Schedule D (Form 1041).

The $3,000 capital loss limitation for the regular tax applies separately for the AMT.

First, figure any ordinary income adjustment related to 3 above. Then, refigure Form 4684, Form 4797, and Schedule D for the AMT, if applicable, by taking into account any adjustments you made this year or in previous years that affect the estate's or trust's basis or otherwise result in a different amount for AMT. If the estate or trust has a capital loss after refiguring Schedule D for the AMT, apply the $3,000 capital loss limitation separately to the AMT loss. For each of the 4 items listed above, figure the difference between the amount included in taxable income for the regular tax and the amount included in income for the AMT. Treat the difference as a negative amount if (a) both the AMT and regular tax amounts are zero or more and the AMT amount is less than the regular tax amount or (b) the AMT amount is a loss, and the regular tax amount is a smaller loss, or zero or more.

Enter on line 13 the combined adjustments for the 4 items above.

Line 14 - Depreciation of Assets Placed in Service After 1986

This section describes when depreciation must be refigured for the AMT and how to figure the amount to enter on line 14.

Do not include on this line any depreciation adjustment from:

• An activity for which the estate or trust is not at risk or income or loss from a partnership or an S corporation if the basis limitations under section 704(d) or 1366(d) apply. Take this adjustment into account on line 16.
• A tax shelter farm activity. Take this adjustment into account on line 23.
• A passive activity. Take this adjustment into account on line 15.

What depreciation must be refigured for the AMT?   Generally, you must refigure depreciation for the AMT, including depreciation allocable to inventory costs, for:

• Property placed in service after 1998 that is depreciated for the regular tax using the 200% declining balance method (generally 3-, 5-, 7-, or 10-year property under the modified cost recovery system (MACRS)),
• Section 1250 property placed in service after 1998 that is not depreciated for the regular tax using the straight line method, and
• Tangible property placed in service after 1986 and before 1999. If the transitional election was made under section 203(a)(1)(B) of the Tax Reform Act of 1986, this rule applies to property placed in service after July 31, 1986.

What depreciation is not refigured for the AMT?   Do not refigure depreciation for the AMT for:

• Residential rental property placed in service after 1998.
• Nonresidential real property with a class life of 27.5 years or more placed in service after 1998 that is depreciated for the regular tax using the straight line method.
• Other section 1250 property placed in service after 1998 that is depreciated for the regular tax using the straight line method.
• Property (other than section 1250 property) placed in service after 1998 that is depreciated for the regular tax using the 150% declining balance method or the straight line method.
• Property for which you elected to use the alternative depreciation system (ADS) of section 168(g) for the regular tax.
• Property that is qualified property under section 168(k)(2) (property eligible for the special depreciation allowance). The special allowance is deductible for the AMT and there is also no adjustment required for any depreciation figured on the remaining basis of the qualified property. Property for which an election is in effect under section 168(k)(2)(C)(iii) to not have the special allowance apply is not qualified property. See the instructions for Form 4562 for the definition of qualified property.
• Motion picture films, videotapes, or sound recordings.
• Property depreciated under the unit-of-production method or any other method not expressed in a term of years.
• Qualified Indian reservation property.

How is depreciation refigured for the AMT?  

Property placed in service before 1999.   Refigure depreciation for the AMT using ADS with the same convention used for the regular tax. See the table below for the method and recovery period to use.

Property Placed in Service Before 1999

Property placed in service after 1998.   Use the same convention and recovery period used for the regular tax. For property other than section 1250 property, use the 150% declining balance method, switching to straight line the first tax year it gives a larger deduction. For section 1250 property, use the straight line method.

How is the AMT class life determined?   The class life used for the AMT is not necessarily the same as the recovery period used for the regular tax. The class lives for the AMT are listed in Rev. Proc. 87-56, 1987-2 C.B. 674, and in Pub. 946, How To Depreciate Property. Use 12 years for any tangible personal property not assigned a class life.

See Pub. 946 for optional tables that can be used to figure AMT depreciation. Rev. Proc. 89-15, 1989-1 C.B. 816, has special rules for short tax years and for property disposed of before the end of the recovery period.

How is the line 14 adjustment figured?   Subtract the AMT deduction for depreciation from the regular tax deduction and enter the result. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.

In addition to the AMT adjustment to your deduction for depreciation, you must also adjust the amount of depreciation that was capitalized, if any, to account for the difference between the rules for the regular tax and the AMT. Include on this line the current year adjustment to taxable income, if any, resulting from the difference.

Line 15 - Passive Activities

Do not enter again elsewhere on this schedule any AMT adjustment or tax preference item included on this line.

For AMT purposes, the rules described in section 469 apply, except that in applying the limitations, minimum tax rules apply.

Refigure passive activity gains and losses on an AMT basis. Refigure a passive activity gain or loss by taking into account all AMT adjustments or tax preference items that pertain to that activity.

You may complete a second Form 8582 to determine the passive activity losses allowed for AMT purposes, but do not send this AMT Form 8582 to the IRS.

Enter the difference between the loss reported on page 1, and the AMT loss, if any.

The amount of any passive activity loss that is not deductible (and is therefore carried forward) for AMT purposes is likely to differ from the amount (if any) that is carried forward for regular tax purposes. Therefore, it is essential that you retain adequate records for both AMT and regular tax purposes.

Publicly traded partnerships (PTPs).   If the estate or trust had a loss from a PTP, refigure the loss using any AMT adjustments and tax preference items.

Line 16 - Loss Limitations

If the loss is from a passive activity, use line 15 instead. If the loss is from a tax shelter farm activity (that is not passive), use line 23.

Refigure your allowable losses for AMT purposes from activities for which you are not at risk and basis limitations applicable to interests in partnerships and stock in S corporations, by taking into account your AMT adjustments and tax preference items. See sections 59(h), 465, 704(d), and 1366(d).

Enter the difference between the loss reported for regular tax purposes and the AMT loss. If the AMT loss is more than the loss reported for regular tax purposes, enter the adjustment as a negative amount.

Line 17 - Circulation Costs

Do not make this adjustment for expenditures for which you elected the optional 3-year write-off period for regular tax purposes.

Circulation expenditures deducted under section 173(a) for regular tax purposes must be amortized for AMT purposes over 3 years beginning with the year the expenditures were paid or incurred.

Enter the difference between the regular tax and AMT deduction. If the AMT deduction is greater, enter the difference as a negative amount.

If the estate or trust had a loss on property for which circulation expenditures have not been fully amortized for the AMT, the AMT deduction is the smaller of (a) the amount of the loss allowable for the expenditures had they remained capitalized or (b) the remaining expenditures to be amortized for the AMT.

Line 18 - Long-Term Contracts

For AMT purposes, the percentage of completion method of accounting described in section 460(b) generally must be used. However, this rule does not apply to any home construction contract (as defined in section 460(e)(6)).

Note:   Contracts described in section 460(e)(1) are subject to the simplified method of cost allocation of section 460(b)(4).

Enter the difference between the AMT and regular tax income. If the AMT income is smaller, enter the difference as a negative amount.

Line 19 - Mining Costs

Do not make this adjustment for costs for which you elected the optional 10-year write-off period under section 59(e) for regular tax purposes.

Expenditures for the development or exploration of a mine or certain other mineral deposits (other than an oil, gas, or geothermal well) deducted under sections 616(a) and 617(a) for regular tax purposes must be amortized for AMT purposes over 10 years beginning with the year the expenditures were paid or incurred.

Enter the difference between the amount allowed for AMT purposes and the amount allowed for regular tax purposes. If the amount allowed for AMT purposes exceeds the amount deducted for regular tax purposes, enter the difference as a negative amount.

If the estate or trust had a loss on property for which mining expenditures have not been fully amortized for the AMT, the AMT deduction is the smaller of (a) the amount of the loss allowable for the expenditures had they remained capitalized or (b) the remaining expenditures to be amortized for the AMT.

Line 20 - Research and Experimental Costs

Do not make this adjustment for costs paid or incurred in connection with an activity in which the estate or trust materially participated under the passive activity rules or for costs for which you elected the optional 10-year write-off for research and experimental expenditures under section 59(e) for regular tax purposes.

Research and experimental expenditures deducted under section 174(a) for regular tax purposes generally must be amortized for AMT purposes over 10 years beginning with the year the expenditures were paid or incurred.

Enter the difference between the amount allowed for AMT purposes and the amount allowed for regular tax purposes. If the amount for AMT purposes exceeds the amount allowed for regular tax purposes, enter the difference as a negative amount.

If the estate or trust had a loss on property for which research and experimental costs have not been fully amortized for the AMT, the AMT deduction is the smaller of (a) the loss allowable for the costs had they remained capitalized or (b) the remaining costs to be amortized for the AMT.

Line 21 - Income From Certain Installment Sales Before January 1, 1987

The installment method does not apply for AMT purposes to any nondealer disposition of property that occurred after August 16, 1986, but before the first day of your tax year that began in 1987, if an installment obligation to which the proportionate disallowance rule applied arose from the disposition. Enter on line 21 the amount of installment sale income that was reported for regular tax purposes.

Line 22 - Intangible Drilling Costs Preference (IDCs)

Do not make this adjustment for costs for which you elected the optional 60-month write-off under section 59(e) for regular tax purposes.

IDCs from oil, gas, and geothermal wells are a preference to the extent that the excess IDCs exceed 65% of the net income from the wells. Figure the preference for all oil and gas properties separately from the preference for all geothermal properties.

Figure excess IDCs as follows:

1. Determine the amount of the estate's or trust's IDCs allowed for the regular tax under section 263(c), but do not include any section 263(c) deduction for nonproductive wells.
2. Subtract the amount that would have been allowed had you amortized these IDCs over a 120-month period starting with the month the well was placed in production.

Note:   Cost depletion can be substituted for the amount allowed using amortization over 120 months.

Determine net income by reducing the gross income that the estate or trust received or accrued during the tax year from all oil, gas, and geothermal wells by the deductions allocable to those wells (reduced by the excess IDCs). When refiguring net income, use only income and deductions allowed for the AMT.

Exception.   The preference for IDCs from oil and gas wells does not apply to taxpayers who are independent producers (i.e., not integrated oil companies as defined in section 291(b)(4)). However, this benefit may be limited. First, figure the IDC preference as if this exception did not apply. Then, for purposes of this exception, complete Schedule I through line 23, including the IDC preference and combine lines 1 through 23. If the amount of the IDC preference exceeds 40% of the total of lines 1 through 23, enter the excess on line 22 (the benefit of this exception is limited). Otherwise, do not enter an amount on line 22 (the estate's or trust's benefit from this exception is not limited).

Line 23 - Other Adjustments

Enter on line 23 the total of any other adjustments that apply including the following.

• Depreciation figured using pre-1987 rules.
  For AMT purposes, use the straight line method to figure depreciation on real property. Use a recovery period of 19 years for 19-year real property and 15 years for low-income housing. Enter the excess of depreciation claimed for regular tax purposes over depreciation refigured using the straight line method. Figure this amount separately for each property and include on line 23 only positive amounts.
  For leased personal property other than recovery property, enter the amount by which the regular tax depreciation using the pre-1987 rules exceeds the depreciation allowable using the straight line method. For leased 10-year recovery property and leased 15-year public utility property, enter the amount by which the depreciation deduction determined for regular tax purposes is more than the deduction allowable using the straight line method with a half-year convention, no salvage value, and a recovery period of 15 years (22 years for 15-year public utility property). Figure this amount separately for each property and include on line 23 only positive amounts.
• Patron's adjustment. Distributions the estate or trust received from a cooperative may be includible in income. Unless the distributions are nontaxable, include on line 23 the total AMT patronage dividend adjustment reported to the estate or trust from the cooperative.
• Amortization of pollution control facilities. The amortization deduction under section 169 must be refigured for the AMT. For facilities placed in service after 1986 and before 1999, figure the amortization deduction for the AMT using the ADS described in section 168(g). For facilities placed in service after 1998, figure the AMT deduction under MACRS using the straight line method. Enter the difference between the regular tax and AMT deduction. If the AMT amount is greater, enter the difference as a negative amount.
• Tax shelter farm activities. Figure this adjustment only if the tax shelter farm activity (as defined in section 58(a)(2)) is not a passive activity. If the activity is passive, include it with any other passive activities on line 15.
  Refigure all gains and losses reported for the regular tax from tax shelter farm activities by taking into account any AMT adjustments and preferences. Determine tax shelter farm activity gain or loss for the AMT using the same rules used for the regular tax with the following modifications. No refigured loss is allowed, except to the extent an estate or trust is insolvent (see section 58(c)(1)). A refigured loss may not be used in the current tax year to offset gains from other tax shelter farm activities. Instead, any refigured loss must be suspended and carried forward indefinitely until (a) the estate or trust has a gain in a subsequent tax year from the same activity or (b) the activity is disposed of.
  The AMT amount of any tax shelter farm activity loss that is not deductible and is carried forward is likely to differ from the regular tax amount. Keep adequate records for both the AMT and regular tax.
  Enter the difference between the amount that would be reported for the activity on Schedule E or F for the AMT and the regular tax amount. If (a) the AMT loss is more than the regular tax loss, (b) the AMT gain is less than the regular tax gain, or (c) there is an AMT loss and a regular tax gain, then enter the adjustment as a negative amount.
  Enter any adjustment for amounts reported on Schedule D, Form 4684, or Form 4797 for the activity on line 13 instead.
• Related adjustments. AMT adjustments and tax preference items may affect deductions that are based on an income limit other than AGI or modified AGI (e.g., farm conservation expenses). Refigure these deductions using the income limit as modified for the AMT. Include the difference between the regular tax and AMT deduction on line 23. If the AMT deduction is more than the regular tax deduction, include the difference as a negative amount.

Note:   Do not make an adjustment on line 23 for an item you refigured on another line of Schedule I (e.g., line 6).

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