✏️+🎥Adjustments for Alternative Minimum Tax🟢

Responses

1. 

   Deleted User 30 September 2024

   Hi, Not able to understand the Depreciation Concepts Please Explain in short Just for the AMT Purposes!

   1. 

      Maroun, CPA 2 October 2024

      Hello Shreyas,

      For AMT, depreciation is calculated differently than for regular tax purposes. Under AMT rules, instead of using the 200% Declining Balance method, you use the 150% Declining Balance method. This results in slower depreciation for AMT purposes, meaning you’ll deduct smaller amounts in the earlier years and more depreciation in the final years.

      Just know that for AMT purposes, you’ll need to use 150% Declining Balance instead of 200%, and that difference can cause adjustments to your AMT calculation. Don’t worry about how the figures were computed in the video.

      Let me know if this helps or if you need further clarification!

2. 

   Deleted User 30 September 2024

   Could you please tell how MACRS 312 and 535 was come I already saw a video of Your MACRS but I Tried To calculate the MACRS for this scenario But still the 312 and 535 Answer was not get it!

   1. 

      Maroun, CPA 2 October 2024

      Hello Shreyas,

      Typically, when calculating MACRS depreciation, a table is provided to guide the computation. For your scenario, you’ll need the table for personal property using the half-year convention (as mentioned by Professor Farhat in the video). You can find the relevant table at minute 16 of the following lecture:
      https://farhatlectures.com/courses/individual-income-tax-course-tax-i/lessons/depreciation-cost-recovery-amortization-depletion/topic/cost-recovery-half-year-convention/

      According to the table, for a 7-year asset, the depreciation percentage in the final year is 4.46%. The computation is as follows:
      Furniture 1 = 7,000 x 4.46% = 312
      Furniture 2 = 12,000 x 4.46% = 535

      Please note that the video primarily focuses on helping you understand AMT, rather than detailing how to compute MACRS.

      Let me know if you need further assistance!

3. 

   Deleted User 30 September 2024

   2017 depreciation: 857
   2018 depreciation: 1,469
   2019 Depreciation: 525
   Adjust basis = 3,149 (6,000 – 857 – 1,469 – 525) Hey requested to you please clarify how this all come I’ve so many confusion in My head Regarding this !

   1. 

      Maroun, CPA 2 October 2024

      Hello Shreyas,

      The depreciation is computed using the Modified Accelerated Cost Recovery System (MACRS) with the half-year convention since furniture is personal property. Under MACRS, furniture is typically depreciated over seven years using the 200% Declining Balance method, which accelerates depreciation by allowing a larger portion of the asset’s value to be depreciated in the earlier years.

      The half-year convention means that in the first year, regardless of when the asset was purchased, you treat it as if it were placed in service in the middle of the year. This way, only half of the first year’s depreciation is applied, and the same goes for the final year when the asset is either fully depreciated or sold.

      The computation is as follows:
      2017 Depreciation (Year of Purchase) = $6,000 x 2/7 x 50% = $857
      2018 Depreciation = ($6,000 – $857) x 2/7 = $1,469
      2019 Depreciation (Year of Sale) = ($6,000 – $857 – $1,469) x 2/7 x 50% = $525

      To find the accumulated depreciation at the time of the sale, we simply add up these amounts:
      Accumulated Depreciation = 857 + 1,469 + 525 = 2,851

      Now, to calculate the adjusted basis, we take the original cost of the furniture, which was $6,000, and subtract the total depreciation of $2,851:
      Adjusted Basis = $6,000 – $2,851 = $3,149

      I hope this helps!

4. 

   Vinny D 10 November 2024

   Hi, I have a really good question related to Depreciation and AMT.

   Professor Farhat taught that when we use MACRS there comes a point where we switch to the straight line method, because it produces more depreciation. When that’s the case, do you then compare the straight line depreciation to the 150% declining balance? Thank you!

   1. 

      Maroun, CPA 14 November 2024

      Hello Vinny,

      Great question! When you’re applying the straight-line switch for AMT, there’s no need to compare it directly to the 150% declining balance method. The switch to straight-line happens automatically within the AMT system, as it’s designed to maximize depreciation deductions under the rules.
      So, once you’re on the AMT depreciation schedule, you follow the AMT rules, and any comparison to MACRS or 200% declining balance isn’t necessary.

      I hope this helps!

5. 

   Jayanthi Ramaswamy 28 December 2024

   Hi Prof Farhat,
   This video on AMT has been posted twice. Also, under “Adjustments and Preferences”. The first lecture recording is missing.
   Thank you. Jai.

   1. 

      Maroun, CPA 30 December 2024

      Hello Jayanthi,

      I’ve added the first AMT lecture.
      Thank you for pointing this out!

      1. 

         Jayanthi Ramaswamy 3 January 2025

         Thank you for the video update.
         Jai

         1. 

            Maroun, CPA 4 January 2025

            You’re most welcome! If you need any further assistance, feel free to reach out.