Archie runs a small mineral exploration business (as a sole proprietorship). In 2016, he purchased land (for $68,000) where he suspected a magnesium deposit was located. He incurred $18,000 of exploration costs related to the development of the magnesium mine in 2016 and an additional $22,000 of exploration costs in 2017. Archie elected to deduct these expenditures for regular tax purposes in both 2016 and 2017. In 2018, given a decline in magnesium prices, Archie chose to sell the property for $66,000, rather than bring the mine to production. What AMT adjustments are required in 2018 related to mine exploration expenditures and the sale of the land

$4,400 mine exploration expenditures

$2,000 Sales of land

Explanation:

[$66,000 (sales price) - $68,000 (basis) on the sales of property = loss of $2,000

10 years Amortization for mine exploration:

2016 Cost 2017 Cost

Total $18,000 $22,000

Amount

2016 $1,800 -

2017 $1,800 $2,200

2018 $1,800 $2,200

$5,400 $4,400

2016 cost ($1,800 +$1,800+ $1,800) =$5,400

2017 cost ($2,200+$2,200)= $4,400

In 2018 a negative AMT of $4,000 ($1,800+$2,200) are necessary for mine exploration expenditures because

the cost are not deducted during the year in which it was incurred but amortized over 10 years and $2, 000 negative AMT adjustment for the sale of the land

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