Which one of the following is NOT an allowable itemized deduction in computing the alternative minimum taxable income?

• A. Investment interest expense
• B. Qualified housing interest
• C. Charitable contribution deduction
• D. State and local income taxes

Answer: (D)

In the context of computing the alternative minimum taxable income (AMTI), state and local income taxes are not allowable itemized deductions. The alternative minimum tax system was designed to ensure that individuals who benefit from certain deductions and credits still pay a minimum level of tax. Therefore, certain deductions, including state and local income taxes, are disallowed in the calculation of AMTI to limit the total deductions taxpayers can take.

In contrast, investment interest expense, qualified housing interest, and charitable contribution deductions are allowable deductions when calculating AMTI. Investment interest expense is deductible to the extent of net investment income, qualified housing interest refers to mortgage interest on a primary residence, and charitable contributions are subject to specific limits but can be deducted. The exclusion of state and local income taxes helps maintain the integrity of the alternative minimum tax system by preventing excessive deductions that could lower taxpayers' overall tax liability beneath a fair level.