Omar acquires used 7-year personal property for $100,000 to use in his business in February 2014. Omar does not elect § 179 expensing, but does take the maximum regular cost recovery deduction. He elects not to take additional first-year depreciation. As a result, Omar will have a positive AMT adjustment in 2014 of what amount?
A) $0.
B) $3,580.
C) $10,710.
D) $14,290.
E) None of the above.

Question

Quizplus · Accepted Answer

The regular cost recovery deduction for personal property is calculated using the MACRS depreciation method over 5 years. Therefore, the regular cost recovery deduction for Omar's used 7-year personal property would be $20,000 annually ($100,000/5 years). Since Omar took the maximum regular cost recovery deduction, his deduction for 2014 would be $20,000.

To calculate the AMT adjustment, we need to use the straight-line depreciation method over 7 years, which results in a depreciation deduction of $14,285. However, since Omar did not elect §179 expensing, he will have a positive AMT adjustment equal to the difference between the straight-line depreciation and the regular cost recovery deduction, which is $20,000 - $14,285 = $5,715.

Therefore, Omar will have a positive AMT adjustment of $5,715 in 2014, and the correct answer is B.

Omar Acquires Used 7-Year Personal Property for $100,000 to Use