Catherine purchased furniture and fixtures (7-year property)for her shop for $80,000 in May.What AMT depreciation adjustment is required for the year?
A)$0.
B)$2,864.
C)$8,568.
D)$11,432.

Question

Quizplus · Accepted Answer

According to the IRS rules, furniture and fixtures are considered 7-year property, and the method of depreciation for AMT purposes is the 150% declining balance method.

The calculation can be done as follows:

Year 1: 
Depreciation rate = (1.5 / 7) = 21.43%
Depreciation for year = $80,000 x 21.43% = $17,144

The AMT adjustment is the difference between the regular tax depreciation and the AMT depreciation:

Regular tax depreciation = $80,000 / 7 = $11,429 
AMT depreciation = $17,144

AMT adjustment = AMT depreciation - regular tax depreciation 
= $17,144 - $11,429 
= $5,715

However, for the first year of placing the property in service, the AMT adjustment is limited to the excess of the regular tax depreciation over the straight-line depreciation. 
Therefore, the AMT adjustment required for the year is: 
= $11,429 - ($80,000 ÷ 7 ÷ 2) 
= $11,429 - $8,565 
= $2,864

Hence, the correct answer is B.

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