A preference item is something that gets preferential tax treatment for regular tax and must be added back to income for the calculation of Alternative Minimum Income to determine Alternative Minimum Tax (AMT). This income is excluded when calculating one's ordinary tax liability but is included when calculating one's liability for the alternative minimum tax. One tax preference item is accelerated depreciation. If you take accelerated depreciation expense it has to be added back on Form 6251.
Adjustment items can be either additions or subtractions from AMT income. For depreciation unless a taxpayer elects to use the same method of calculating depreciation for regular tax and AMT on post-1986 assets, depreciation is calculated differently for regular tax and for AMT on those assets.
Usually, the differences in depreciation rules for regular tax and AMT results in a greater depreciation deduction for an asset for regular tax in the earlier years of the asset’s recovery period and a lower deduction for regular tax in the later years.
The calculation of Adjustments and Preferences is the sum of the cumulative differences between depreciation for regular tax and AMT tax.
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