AMT and Cost Segregation: When Accelerated Depreciation Triggers AMT Preference

How §55 AMT, §56 preferences, and §59(e) interact with cost segregation, with a worked example showing when accelerated depreciation creates an AMT preference item.

AMT and Cost Segregation: When Accelerated Depreciation Triggers AMT Preference

What you'll learn. How the alternative minimum tax (IRC §55) interacts with cost segregation under §56(a)(1) depreciation preferences, why §168(k) bonus depreciation is largely AMT-neutral after the TCJA changes, and where corporate AMT under §55(b)(2) can still bite. This walks through a worked example for a high-income individual investor and a separately-stated example for a C-corp under the post-2022 corporate-AMT regime.

The big-picture answer first

For individual taxpayers, the AMT interaction with cost segregation is now largely benign:

• §168(k) bonus depreciation (any rate) does not create an AMT preference item. §168(k)(2)(G) explicitly conforms regular tax and AMT depreciation for §168(k) bonus property.
• Regular MACRS on the post-bonus residual of 5-year, 7-year, and 15-year property uses 200%-DB (or 150%-DB for 15-yr) for regular tax and 150%-DB for AMT — historically a small AMT preference. After the AMT-and-regular conformity changes in §56(a)(1)(A)(ii) (TCJA 2017, retained by OBBBA), this preference applies only to non-bonus MACRS depreciation. With 100% bonus, the residual is zero, so the preference is zero.
• 27.5-year residential and 39-year nonresidential building depreciation is straight-line — no AMT preference.

So for a 2026 acquisition with 100% OBBBA bonus, an individual cost-seg study generates no individual AMT preference to speak of. The AMT exemption thresholds in §55(d) ($85,700 single / $133,300 MFJ for 2026 per Rev. Proc. 2025-32) phase out only at incomes well above $600K — and even then, the cost-seg-driven preference is zero.

For C-corporations, the picture changed under IRA 2022's new corporate alternative minimum tax (CAMT) under §55(b)(2). That's where the modern AMT/cost-seg interaction lives.

Individual AMT — historical preference, now mostly extinct

Pre-TCJA (2017 and earlier), AMT depreciation was 150%-DB over the §168(g) ADS recovery period — typically longer than regular MACRS. The taxpayer ran two depreciation schedules side-by-side and picked up the difference as an AMT preference on Form 6251 line 2j.

TCJA conformed the regular and AMT methods for property placed in service after September 27, 2017. §56(a)(1)(A)(ii) now reads:

In the case of any property placed in service after September 27, 2017, this paragraph shall not apply for purposes of determining alternative minimum taxable income.

In plain terms: AMT depreciation equals regular tax depreciation for property placed in service after Sep 27, 2017. No preference. No Form 6251 line 2j addback. The cost-seg study and the regular MACRS schedule both flow into AMTI without modification.

The exception. Property placed in service before September 28, 2017 still carries the legacy preference. For a Form 3115 lookback on a property acquired in, say, 2014, the §481(a) catch-up may include depreciation differences for tax years 2014, 2015, and 2016 — pre-conformity years — and those differences do create a legacy AMT preference. The amount is generally small relative to the full §481(a) figure.

Corporate AMT under §55(b)(2)

The Inflation Reduction Act of 2022 (Pub. L. 117-169 §10101) created a new corporate alternative minimum tax equal to 15% of the corporation's "adjusted financial statement income" (AFSI) for "applicable corporations" — those with average AFSI exceeding $1 billion over a three-year testing period (with related-party aggregation under §55(b)(2)(C)). The CAMT applies for tax years beginning after December 31, 2022.

For applicable corporations, AFSI is computed starting from book income and applying specific adjustments under §56A. Critically, §56A(c)(13)(A) allows the corporation to substitute tax depreciation under §168 for book depreciation when computing AFSI for §168 property — meaning §168(k) bonus depreciation flows through to AFSI, which flows through to CAMT taxable income.

So even for the largest C-corps, cost-segregation bonus depreciation does not create a CAMT preference. The depreciation flows through both regular tax and CAMT identically.

Worked example — high-income individual investor

A taxpayer with $850,000 of W-2 income and a $750,000 STR cost-seg study (28% accelerable, 100% bonus):

• Regular taxable income with cost seg: $850,000 - $210,000 (bonus) - $14,000 (building S/L) = $626,000
• Regular tax at 32–37% brackets ≈ $192,000
• AMTI start: regular taxable income, no §56(a)(1) addback because the property is post-2017 placed-in-service
• AMT exemption: phased out (married, ~$133,300 with phaseout starting at $1,218,700 — taxpayer's AMTI of ~$626K is below the phaseout start, so full exemption applies)
• Tentative AMT: ($626,000 - $133,300) × 28% (AMT top rate after the $232,600 AMT income breakpoint) ≈ $138,000 — far below regular tax
• AMT bill: $0. Regular tax controls.

The cost-seg deduction reduced regular tax dollar-for-dollar with no AMT clawback. The interaction here is benign.

Worked example — same taxpayer with a 2014 lookback

Same taxpayer, but the §481(a) catch-up is on a property acquired in May 2014:

• §481(a) federal catch-up: $90,000 (deduction in 2026)
• The §481(a) figure includes depreciation differences for 2014, 2015, and 2016 — the pre-conformity years
• Estimated 2014–2016 portion of the §481(a) attributable to the AMT preference: ~$8,000 (the difference between regular 200%-DB and AMT 150%-DB on the post-bonus residual for those three years)
• Form 6251 line 2j addback: $8,000 (pre-conformity legacy preference)
• AMTI = regular taxable income + $8,000 = ~$634,000
• Tentative AMT now ≈ $140,200 — still below regular tax of ~$192,000
• AMT bill: still $0.

The legacy preference matters when the taxpayer is otherwise close to the AMT crossover (high state-tax addbacks under §56(b), large incentive stock option exercises, or significant private-activity-bond interest). For a typical real-estate investor whose primary AMT exposure is the property itself, the legacy preference rarely flips the bill.

§59(e) — a deliberate AMT-friendly election

IRC §59(e) lets a taxpayer elect to amortize certain expenditures over 10 years instead of taking them in the year incurred — explicitly to avoid creating an AMT preference. The election is rarely useful for cost segregation post-2017 because the conformity rules already eliminate the preference. It remains relevant for §174 research expenditures and §263(c) intangible drilling costs — categories outside our scope.

Where the screening tool fits

Our feasibility estimator computes the regular federal year-1 tax effect at the marginal bracket the user enters. It does not compute AMT. For 2017+ acquisitions on the regular individual return, this is the right answer — the AMT preference is zero. For:

• Pre-2017 §481(a) lookbacks
• High-income taxpayers with significant other AMT preferences (state tax addbacks, ISO exercises, private-activity-bond interest)
• C-corporations subject to CAMT under §55(b)(2)

— the practitioner should run a Form 6251 (or 8827 for C-corps) parallel calculation. The cost-seg engine output is the regular-tax baseline; the AMT analysis is a separate overlay.

Screen a 2026 acquisition with the regular-tax federal effect →

Sources

• IRC §55 — Alternative minimum tax (individuals and corporations)
• IRC §55(b)(2) — Corporate alternative minimum tax (IRA 2022)
• IRC §56(a)(1) — Depreciation preference
• IRC §56(a)(1)(A)(ii) — Post-Sep 27, 2017 conformity
• IRC §56A — AFSI computation rules
• IRC §56A(c)(13)(A) — §168 depreciation in AFSI
• IRC §59(e) — Elective 10-year amortization
• IRC §168(k)(2)(G) — Bonus AMT conformity
• Pub. L. 117-169 §10101 — Inflation Reduction Act of 2022
• IRS Form 6251 Instructions — Alternative Minimum Tax — Individuals
• IRS Form 4626 Instructions — Corporate AMT (CAMT)
• Rev. Proc. 2025-32 — 2026 AMT exemption thresholds

Disclaimer. This tutorial describes general federal tax concepts. TaxProtestTx (Nought Labs LLC) is a feasibility-screening tool, not tax advice or a cost segregation study. Calculator output cannot be relied on under Treasury Circular 230. Consult a qualified CPA, EA, or attorney before filing. Results are not guaranteed.