On February 1, 2017, Omar acquires used 7-year personal property for $100,000 for use in his business. Omar does not elect § 179 expensing, but he does take the maximum regular cost recovery deduction. As a result, Omar incurs a positive AMT adjustment in 2017 of what amount?
A)$0
B)$3,580
C)$10,710
D)$14,290
E)None of the above

Question

Quizplus · Accepted Answer

Since Omar did not elect § 179 expensing, the regular cost recovery deduction will be over a 5-year period, using the 200% declining balance method. Therefore, the regular depreciation deduction for the first year will be $40,000 ($100,000 × 40%). For AMT purposes, the property is depreciated over a longer recovery period using the 150% declining balance method. Therefore, the AMT depreciation deduction for the first year is $30,000 ($100,000 × 30%). The positive AMT adjustment is the excess of the AMT depreciation amount over the regular tax depreciation amount, or $10,000 ($40,000 − $30,000). Since the maximum AMT rate is 28%, the positive AMT adjustment is $2,800 ($10,000 × 28%). However, the AMT exemption amount for 2017 is $84,500, so Omar's positive AMT adjustment will be reduced by the AMT exemption amount. Therefore, the positive AMT adjustment will be $3,580 ($2,800 − $(-)780).

On February 1, 2017, Omar Acquires Used 7-Year Personal Property