Eula owns a mineral property that had a basis of $23,000 at the beginning of the year.Cost depletion is $19,000.The property qualifies for a 15% depletion rate.Gross income from the property was $200,000, and net income before the percentage depletion deduction was $50,000.What is Eula's AMT preference for excess depletion if she maximized her regular tax depletion deduction?
A)$15,000
B)$23,000
C)$25,000
D)$2,000

Question

Quizplus · Accepted Answer

For the Alternative Minimum Tax (AMT) calculation, the preference item is the excess of the percentage depletion over the adjusted basis of the property. Eula's percentage depletion is 15% of $200,000 (gross income from the property), which equals $30,000. Since the cost depletion is $19,000 and the adjusted basis is $23,000, the excess depletion (percentage depletion minus the adjusted basis) is $30,000 - $23,000 = $7,000. However, for regular tax purposes, the depletion deduction cannot exceed 50% of the net income from the property before the depletion deduction, which is $50,000 in this case. Therefore, the maximum depletion deduction for regular tax purposes is $25,000 (50% of $50,000), which is less than the calculated percentage depletion. Since the question asks for the AMT preference for excess depletion if she maximized her regular tax depletion deduction, and the regular tax depletion deduction ($25,000) is less than the percentage depletion ($30,000), there is no excess depletion for AMT purposes. Thus, the correct answer is not directly provided in the options given, suggesting a potential misunderstanding in the question's setup or the answer choices. Based on the information and calculations provided, none of the options accurately reflect the correct excess depletion for AMT purposes under the described scenario.

Eula Owns a Mineral Property That Had a Basis of $23,000