During 2017,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 2017 depreciation deduction for purposes of the alternative minimum tax?
A)$2,000
B)$2,857
C)$3,000
D)$4,000
E)$5,714

Question

Quizplus · Accepted Answer

For the alternative minimum tax (AMT) purposes, the equipment will be depreciated using the straight-line method over the class life of 12 years. The 7-year property belongs to the 5-year class life and is assigned a recovery period of 6 years. The MACRS depreciation formula for year 1 is 14.29% (1/7) multiplied by the cost, which yields $5,716. However, when calculating AMT depreciation, the adjusted basis for each year's depreciation must be reduced by the adjustment amount, which is calculated as the excess of the 150% declining balance depreciation over the straight-line depreciation (in this case $1,020). Therefore, the adjusted basis for year 1 is $38,980 ($40,000 - $1,020), and the AMT depreciation deduction is $2,857 ($38,980 x 7.355% for 2017).

During 2017,Williams Company Purchases and Places in Service Office Equipment