Wabash Corporation, a calendar year taxpayer, purchases and places into service $400,000 of equipment in Year 1. The equipment is seven-year MACRS property, and the half-year convention applies to it. Wabash sells the equipment for $245,000 in Year 3. Assume that 50% bonus depreciation is available in Year 1. For each of the following two independent cases, determine Wabash’s gain or loss on the equipment’s sale for regular tax and AMT purposes, and determine the amount of Wabash’s AMT adjustments for Years 1, 2, and 3.
a. Wabash elects to expense $120,000 of the equipment’s cost under Sec. 179 and does not elect out of bonus depreciation for Year 1.
b. Wabash does not elect to expense any of the equipment’s cost under Sec. 179 and elects out of bonus depreciation for Year 1.