Omar acquires used 7-year personal property for $100,000 to use in his business in February 2008. Omar does not elect 179 expensing, but does take the maximum recovery dedcution. As a result, Omar will have a positive AMT adjustment in 2008 of what amount?

To determine the positive Alternative Minimum Tax (AMT) adjustment for Omar in 2008, we need to understand a few key concepts related to depreciation and AMT.

1. Modified Accelerated Cost Recovery System (MACRS): MACRS is the current method used in the United States to depreciate tangible personal property for tax purposes. Under MACRS, assets are assigned to different depreciation recovery periods based on their specific categories.

2. Recovery Deduction: The recovery deduction, also known as depreciation expense, is the annual deduction allowed for the wear and tear, deterioration, or obsolescence of a business asset. It represents the recovery of the cost of the asset over its useful life.

3. Section 179 Expensing: Section 179 of the Internal Revenue Code allows businesses to deduct the full cost of qualifying assets in the year they are placed in service, rather than depreciating them over time. This deduction is subject to certain limits and is elected by the taxpayer.

4. Alternative Minimum Tax (AMT): The AMT is a parallel tax system designed to ensure taxpayers pay a minimum amount of tax. It disallows certain deductions, exemptions, and credits to prevent high-income individuals from avoiding tax liability.

Based on the information provided, Omar did not elect Section 179 expensing but took the maximum recovery deduction. This means he is using MACRS to depreciate the personal property over its specified recovery period.

To calculate the AMT adjustment, we need to determine the depreciation expense for the asset Omar acquired in February 2008. Since it is a 7-year personal property, it falls into the 5-year recovery period under MACRS.

The MACRS recovery percentages for 5-year property are as follows:
Year 1: 20.00%
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%

To calculate the depreciation expense for 2008 (Year 1), we use the recovery percentage of 20%:
Depreciation expense = Cost of personal property * Recovery percentage
Depreciation expense = $100,000 * 20.00% = $20,000

Since Omar took the maximum recovery deduction, he will deduct the full $20,000 as a business expense in 2008. However, for AMT purposes, we need to calculate the positive AMT adjustment.

Positive AMT Adjustment = Depreciation expense - Regular tax depreciation deduction
Omar will have a positive AMT adjustment when the depreciation expense for regular tax purposes is less than the depreciation calculated for AMT purposes.

If we assume that the regular tax depreciation deduction is zero (since Omar did not elect Section 179 expensing), then the positive AMT adjustment for Omar in 2008 would be $20,000.

Please note that this explanation is based on the information provided, and tax calculations can be complex. It is always prudent to consult a qualified tax professional for accurate and specific advice related to your individual situation.

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