Dale owns and operates Dale's Emporium as a sole proprietorship.On January 30,1998,Dale's Emporium acquired a warehouse for $100,000.For regular income tax purposes in 2016,depreciation was deducted under MACRS using a rate of 2.564%.Determine the AMT adjustment for depreciation and indicate whether it is positive or negative.
A)$64 negative adjustment.
B)$64 positive adjustment.
C)No adjustment is required because Dale's Emporium used the Alternative Depreciation System (ADS)to compute depreciation on the property for AMT purposes.
D)No adjustment is required because Dale's Emporium used MACRS to compute the depreciation of the property for regular income tax purposes.

Question

Quizplus · Accepted Answer

In order to calculate the AMT adjustment for depreciation, we need to determine the depreciation that would have been taken under the Alternative Depreciation System (ADS). If the property was placed in service prior to 1987, then ADS would not be required and no adjustment would be necessary. However, since the property was placed in service in 1998, ADS would be required. Under ADS, the straight-line method is used over the full recovery period, which for nonresidential real property is 40 years. Therefore, the amount of depreciation that would have been taken under ADS in 2016 is $2,500 ($100,000/40 years). The MACRS depreciation taken in 2016 was $2,564 ($100,000 x 2.564%), which results in a positive adjustment of $64 ($2,564 - $2,500).

Dale Owns and Operates Dale's Emporium as a Sole Proprietorship