Which of the following is a tax preference item for alternative minimum tax?

The bargain element on the exercise of an incentive stock option is a tax preference item for the alternative minimum tax (AMT). When an individual exercises an incentive stock option, the difference between the fair market value of the stock at the time of exercise and the option's exercise price (known as the bargain element) is not subject to regular income taxation at that moment. However, for AMT purposes, this bargain element is treated as income, which increases the taxpayer's AMT income and could lead to a higher tax liability under the AMT framework.

Understanding the mechanics of the alternative minimum tax is crucial here, as it's designed to ensure that high-income earners pay at least a minimum amount of tax by adding back certain preference items to their taxable income. The inclusion of the bargain element under the AMT highlights how specific types of income, usually exempt under regular tax rules, can affect an individual's tax liability.

In contrast, the other options do not fall into the category of tax preference items for AMT. The standard deduction is not allowed when calculating AMT, but it is not a preference item itself. Interest from municipal bonds is typically exempt from both regular tax and AMT, making it not subject to additional taxation under AMT rules.