AMT Depreciation Adjust't

[rfk]

A question regarding AMT Depreciation,

Is it kosher to "adjust" the depreciation rates (rates per property individually) to 150% DB, so that AMT does not compute a Post-1986 depreciation adjustment. That way, my client won't be affected by having Form 6251, etc. issues.

Please convey your thoughts about this.

Thank you.

Ray

[OldJack]

A question regarding AMT Depreciation,

Is it kosher to "adjust" the depreciation rates (rates per property individually) to 150% DB, so that AMT does not compute a Post-1986 depreciation adjustment. That way, my client won't be affected by having Form 6251, etc. issues.

Please convey your thoughts about this.

Thank you.

Ray

Once you elect a depreciation rate/method (ie:200%) you can't just change it without it being considered a change in accounting methods.

[rfk]

What about just affecting the dollar amount of depreciation taken? I know your probably thinking what is this person trying to do? I don't want to change the method shown, just to reflect the AMT 150% DB rates that are an issue for their personal return.

The last person that did this tax return as a C crop., had adjusted the dollar amounts that were actually different than the computed 7 year, 200%DB rate(s). They were off by dollars here and there. I have carried those values forward because it is history now. But again, I amtrying to adhere to AMT rates, instead of regular depreciation which affects their return in the end.

Thanks.

Ray

[OldJack]

Again, you can't just change the method or the deduction. If you take less than the elected method that would be an error and would not change the AMT comparison to the elected amount "allowed" but not taken. Rounding causing things to be off a dollar or two but this does not seem to be something the IRS gets concerned with. When the taxpayer first elects a method for depreciation s/he knows there may be an AMT difference every year until the AMT depreciation is fully depreciated.

[Snaggletooth]

Latitude

Ol' Jack Daniels is right - you can't change.

However, there is a great deal of latitude in deciding on depreciable methods and lives in the year of election. 5- and 7- year property can be elected to have longer lives. There is also s.179 which if qualifying, can be taken to any extent, small or large. Furthermore, these elections made in one year are not binding on the next.

Once having elected, it can't be changed. Here is an example: In 2004, taxpayer buys 5-year property and elects 5-yr. double-declining. He doesn't particularly need much of a deduction in 2004, but expects a windfall year in 2005 and wants a big deduction in 2005 which will happen in year 2 of the equipment. But for purposes of illustration, lets assume that instead of having a windfall, the taxpayer has a TERRIBLE 2005, so bad that this large depreciation deduction actually helps him very little. He CANNOT go back and change his election for 2004 and must take the prescribed amount of 2005 depreciation on assets elected in 2004. He is free, however, to elect new methods and lives for similar equipment bought in 2005.

The AMT poses a big problem for taxpayers who want to go for broke and squeeze the most rapid depreciation possible. For most taxpayers wealthy enough to buy the s.179 limit ($100,000), the s.179 write off does them little good because they have to eat the accelerated amount on their AMT. Top tax brackets nullify tax breaks and tax planning because of the AMT and phaseouts.

Kinda like the redneck who never repaired his leaky roof. When it's raining, he can't work outside in the bad weather, and when it's not raining, it doesn't leak.

[rfk]

Thank you for all your answers! I appreciate it very much.

Ray

[OldJack]

The AMT poses a big problem for taxpayers who want to go for broke and squeeze the most rapid depreciation possible. For most taxpayers wealthy enough to buy the s.179 limit ($100,000), the s.179 write off does them little good because they have to eat the accelerated amount on their AMT. Top tax brackets nullify tax breaks and tax planning because of the AMT and phaseouts.

What you say is true except for the code §179 write-off and AMT. No adjustment is necessary for §179 property or property for which the "special depreciation allowance" (30% & 50%) is claimed. That is a good reason to elect §179 expensing which is not depreciation with regards to the AMT.