Negative AMT

[Snaggletooth]

One of my high income clients strugggles with AMT every year.

A year or so ago I changed the depreciation method for his corporation.
His equipment is now producing a "negative" differential for AMT
depreciation. In 2006, this "negative" differential was about ($45,000).

He has no 2006 AMT because my software is forcing an entry of
-$45000 into the AMT calculation. In fact, he is recovering all of last
year's AMT on an 8801.

Am I missing something? I was always taught that the Depreciation
Adjustment goes in one direction. You have to report the excess, but
cannot use a deficiency. My software does not allow zeroing out the
line..

HELP!! Am I wrong to report the "excess" and not the "shortage?"

Thanks in advance

[Chief]

snag

Snag, why don't you call TS and see what they have to say?

[veritas]

It is not uncommon to see a

negative amt depreciation adjustment. Same with amt gains and losses. Since you are depreciating generally at a slower pace than regular depreciation. So when you dispose of the asset the gain is smaller or the loss greater.

But your statement "A year or so ago I changed the depreciation method for his corporation." is confusing. Do you mean you elected a slower method for items placed in service in 2005?

[Snaggletooth]

Thanks, but...

the original question went unanswered. In case I did a poor job of framing the question, it is "Is Negative AMT adjustment for post 1986 depreciation allowed in the AMT calculation?"

I haven't called TS, but the mechanics are such that the negative amount must be carried because it could "net" to a positive number. In other words, negative $10K from Farm depreciation might combine with positive $12K from Sch C depreciation, and the system must calculate a $2K positive adjustment. I'm certain that taxpayer would only be required to recognize $2K in the example above.

The disposition gain/loss would almost always be negative - I can't create a scenario where this wouldn't happen, and this factor exists to blunt the AMT for prior years of penalizing the taxpayer.

Thanks for the responses, and I'm hoping more will address this.

[JG EA]

Sure

Negative depreciation goes on the AMT. This happens when more depreciation was taken in early years and now less is taken than the more even AMT depreciation.

[jainen]

What are you talking about?

>>"Is Negative AMT adjustment for post 1986 depreciation allowed in the AMT calculation?"<<

AMT depreciation is figured under its own rules. It is typically lower than GDS in the earlier years because it uses straightline instead of declining balance and the recovery period is longer. In later years of an asset's life regular MACRS will have run its course so AMT straightline is correspondingly higher.

Therefore the AMT adjustment could go either way. The instructions for line 17 of Form 6251 say, "If the AMT deduction is more than the regular tax deduction, enter the difference as a negative number."

So that clears up that. Now let's go back to veritas's question about changing the depreciation method. What are you talking about?

[Snaggletooth]

Answer

for Veritas and Jainen -- changing methods and conventions.

This customer spends a huge amount of money on capital equipment,
and not only that but the amounts can spike significantly upward or
downward from year to year. I was taking 200DB on everything, and
occasionally some of this was sold and the calculated recapture was
unrealistic.

By 2005, after several years of significant growth, it became clear that
we were losing the battle of the AMT. "Changing methods" involved
a larger share of section 179 up front, and a smaller amount subject
to accelerated depreciation. Both of these changes resulted in a
dramatic reduction in AMT. In 2006, taxpayer actually qualifies for
an 8801.

Thanks for the response Jainen - it does clear it up.