In March 2017, Grackle, Inc., acquired used equipment for its business at a cost of $300,000. The equipment is five-year class property for regular income tax purposes and for AMT purposes. Grackle does not claim any available additional first-year depreciation. Click here to refer the depreciation tables.

a. If Grackle depreciates the equipment using the method that will produce the greatest deduction for 2017 for regular income tax purposes, what is the amount of the AMT adjustment? Grackle does not elect 179 limited expensing or additional first-year depreciation.

Regular income tax depreciation $ 60,000

AMT depreciation $ 45,000

Positive AMT adjustment $ ____________

c. Complete a letter to Helen Carlon, Grackles controller, regarding the choice of depreciation methods.

In response to your inquiry regarding the appropriate depreciation method for the $300,000 of used equipment placed in service during March 2017, two options are available. The first will produce a larger depreciation deduction, but may result in the AMT being paid. The second option will produce a smaller depreciation deduction, but will have no effect on the AMT. Note that as we discussed, you decided not to elect 179 limited expensing treatment and additional first-year depreciation is not available because the property is used.

Under the first option, depreciation is calculated using the 200 % declining balance method with a five-year recovery period. The amount of the depreciation deduction under this method is $_______. However, for AMT purposes, the depreciation is calculated using the 150% declining-balance method with a five-year recovery period. The amount of the depreciation deduction for AMT purposes is $_______. Therefore, for AMT purposes, there will be a positive adjustment of $______-.

Under the second option, depreciation for regular income tax purposes and AMT purposes is calculated using the depreciation method and recovery period required for AMT purposes. Thus, in both cases, the amount of the depreciation deduction is $______. The benefit of electing to calculate the regular income tax depreciation this way is that the aforementioned positive adjustment for AMT purposes is avoided.

What are the $______ costs?