With respect to AMT depreciation adjustment when equipment is traded in -
Simple question: Is the difference rolled into a different AMT basis for the new equipment? Or is the difference disgorged in the
year of trade and no adjustment in the new basis?
Well, I posed it as a simple question, but it is not. Better to illustrate:
Bubba has a tractor, Original Cost $10,000 Depreciation $7,000. AMT Depreciation is $5500.
He trades it in on another tractor, and pays $15,000 cash. We know what happens for his "normal" depreciation:
$15,000 cash plus $3000 Book Value of the trade-in results in new basis of $18,000. But what happens for his AMT status?
The above "simple" question can be posed as a choice between the following:
a) $15,000 cash plus $4500 AMT Book Value of the trade-in results in a new basis of $19,500, and AMT depreciation begins
at that point with a higher basis than regular basis.
b) $1,500 difference in imbedded AMT depreciation is immediately written off as an adjustment to Form 6251 in the year of
the trade, thus eliminating the difference in trade-in basis. New basis is thus the same as regular depreciation, $18,000.
How do you treat the above? b)makes for incredibly simpler calculations going ahead into the future but I'm not sure it is correct.
Simple question: Is the difference rolled into a different AMT basis for the new equipment? Or is the difference disgorged in the
year of trade and no adjustment in the new basis?
Well, I posed it as a simple question, but it is not. Better to illustrate:
Bubba has a tractor, Original Cost $10,000 Depreciation $7,000. AMT Depreciation is $5500.
He trades it in on another tractor, and pays $15,000 cash. We know what happens for his "normal" depreciation:
$15,000 cash plus $3000 Book Value of the trade-in results in new basis of $18,000. But what happens for his AMT status?
The above "simple" question can be posed as a choice between the following:
a) $15,000 cash plus $4500 AMT Book Value of the trade-in results in a new basis of $19,500, and AMT depreciation begins
at that point with a higher basis than regular basis.
b) $1,500 difference in imbedded AMT depreciation is immediately written off as an adjustment to Form 6251 in the year of
the trade, thus eliminating the difference in trade-in basis. New basis is thus the same as regular depreciation, $18,000.
How do you treat the above? b)makes for incredibly simpler calculations going ahead into the future but I'm not sure it is correct.
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