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Depletion Allowance
Replies to This Discussion
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Permalink Reply by Buddy Cotten on
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Dear Mr.von Proctor,
In 99% of the time, you would qualify for a depletion allowance. You may either have percentage depletion or cost depletion. Percentage depletion (at the present time) is 15%. Cost depletion will depend on your basis.
Check with your accountant or tax advisor.
Best,
Buddy Cotten
Mineral Management
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Permalink Reply by JW Anderson on -
In addition to federal depletion allowance of 15%, states that levy income taxes have varying amounts of depletion allowance. Oklahoma, for example, has a depletion allowance of 22%.
Percentage depletion is a gift that "keeps on giving". In other words, this continues year after year without limit. For most properties, this is the accounting technique used. (If you had a high cost basis in a property, and only had minimal produciton, you might consider cost depletion.)
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Permalink Reply by Ray A. von Proctor on
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Thank you for the information!
Does Bentonite qualify for the depletion allowance?
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Permalink Reply by out of state on
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Note that the depletion allowance is 15% of gross, i.e. 15% of your royalty income before subtraction of severance taxes, before subtraction of deductions such as transportation, and also before any state or federal income taxes are subtracted.
Most years I have one or two Forms 1099 that don't show the gross, so I go back to the check stubs to get the information for my calculation of gross. (I include a detailed workpaper as an Exhibit to Schedule E, showing how all the numbers on the 1099's tie to my numbers.)
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Permalink Reply by mike henry on -
Is the 15% depletion allowed on signing bonus. I ask because I've been told yes and no, My cpa sez no because the 1099 list it as rent and the 1099 provider sez to their knowledge half of their MOs use it and half do not.
Federal reg book 535 to my understanding allows the depletion, Anybody have Knowledge on this.
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Permalink Reply by r w kennedy on
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Mr. Henry, I would say your CPA has the right of it. Your property has not suffered depletion just because you signed a lease, which may run it's course and expire without drilling/production, leaving your mineral estate in exactly the same condition as it was before you leased it.
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Permalink Reply by JW Anderson on
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Federal depletion is NOT allowed on a signing bonus, period. However, in the state of Oklahoma, lease bonus is considered income for purposes of depletion on the STATE income taxes only.
mike henry said:Is the 15% depletion allowed on signing bonus. I ask because I've been told yes and no, My cpa sez no because the 1099 list it as rent and the 1099 provider sez to their knowledge half of their MOs use it and half do not.
Federal reg book 535 to my understanding allows the depletion, Anybody have Knowledge on this.
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Permalink Reply by mike henry on
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I understand what you are saying however I'm fortunate to be producing on 2 of 3 leases and the remaining one
has a well on confidential status with 2yrs remaining on lease. It's in williams co. ND so I fell good it should produce something prior to end of lease ( wells around it avg 200- 450 bopd ). Knowing this what do you think,
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Permalink Reply by Cara Simmons on
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What would be the 1% of the time that you wouldn't qualify? Good stuff!
Buddy Cotten said:Dear Mr.von Proctor,
In 99% of the time, you would qualify for a depletion allowance. You may either have percentage depletion or cost depletion. Percentage depletion (at the present time) is 15%. Cost depletion will depend on your basis.
Check with your accountant or tax advisor.
Best,
Buddy Cotten
Mineral Management
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