Falcon, Inc., owns a silver mine that it purchased several years ago for $925,00

Question

Falcon, Inc., owns a silver mine that it purchased several years ago for $925,000. The adjusted basis at the beginning of the year is $400,000. For the year, Falcon deducts depletion of $700,000 (greater of cost depletion of $290,000 or percentage depletion of $700,000) for regular income tax purposes.

If an amount is zero, enter "0".

a. Falcon has a positive AMT tax preference of $__________

b. Falcon's regular income tax adjusted basis is $___________

c. Falcon's AMT adjusted basis is $___________

Explanation / Answer

1. For AMT purposes, depletion is allowed only to the extent of adjusted basis for the mine. Thus AMT tax preference will be of $ 400,000

2. Regular income tax adjustment basis at the end of the year is 400000 - 700000 = - $ 300000. Since adjusted amount cannot be in negative it would be Zero

3. AMT adjusted basis is $ 400000 - $ 290000 = $ 110000

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