Choice "B" is correct. Mills' alternative minimum taxable income starts with his taxable income ($70,000). This is increased by state and local taxes paid ($5,000) and miscellaneous deductions that exceed 2% of adjusted gross income ($2,000) for a total of $77,000. The home mortgage interest on a loan to acquire the residence ($6,000) does not increase alternative minimum taxable income.
Choice "a" is incorrect. State and local income taxes must be added back to Mills' taxable income in calculating alternative minimum taxable income.
Choice "d" is incorrect. Miscellaneous deductions that exceed 2% of AGI must be added back to Mills' taxable income in calculating alternative minimum taxable income.
Choice "c" is incorrect. Home mortgage interest is not added back to Mills' taxable income to calculate alternative minimum taxable income.