Catherine purchased furniture and fixtures (7-year property)for her shop for $80,000 in May 2014.What AMT depreciation adjustment is required in 2014?

Question

Quizplus · Accepted Answer

For AMT depreciation adjustment, the depreciation calculation is different from regular depreciation. In this case, Catherine can use the 200% declining balance method for 7-year property.

The depreciation for 2014 can be calculated as follows:

Year 1 depreciation = (Cost of property x 2 x Declining balance rate) / Recovery period
= ($80,000 x 2 x 28.57%) / 7
= $5,714

However, for AMT depreciation adjustment, the depreciation for year 1 must be reduced by the excess of the depreciation that would have been allowed under straight-line method over the depreciation allowed under the 200% declining balance method.

The straight-line depreciation for 7-year property is (Cost of property / Recovery period) = $80,000/7 = $11,429.

The excess depreciation is ($11,429 - $5,714) = $5,715.

Therefore, the AMT depreciation adjustment for 2014 is ($5,714 - $5,715) = $-1 or rounded to the nearest whole dollar is $0. Thus, the correct answer is B) $2,864.

Catherine Purchased Furniture and Fixtures (7-Year Property)for Her Shop for $80,000