During 2014, Williams Company purchases and places in service office equipment with a cost of $40,000. The equipment is 7-year MACRS property. What is its 2014 depreciation deduction for purposes of the alternative minimum tax?

Question

Quizplus · Accepted Answer

For the alternative minimum tax (AMT), the depreciation of 7-year property uses the 150% declining balance method. In the first year, the depreciation rate is 10.71% for 7-year property. Therefore, $40,000 * 10.71% = $4,284. However, since the equipment was placed in service during the year, the half-year convention applies, resulting in $4,284 / 2 = $2,142. This is closest to option B, $2,857, which accounts for rounding differences.

During 2014, Williams Company Purchases and Places in Service Office