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1040 Nr Software

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1040 Nr Software

1040 nr software 9. 1040 nr software   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. 1040 nr software Depletion unit. 1040 nr software Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. 1040 nr software The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. 1040 nr software There are two ways of figuring depletion: cost depletion and percentage depletion. 1040 nr software For mineral property, you generally must use the method that gives you the larger deduction. 1040 nr software For standing timber, you must use cost depletion. 1040 nr software Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. 1040 nr software More than one person can have an economic interest in the same mineral deposit or timber. 1040 nr software In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 1040 nr software You have an economic interest if both the following apply. 1040 nr software You have acquired by investment any interest in mineral deposits or standing timber. 1040 nr software You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. 1040 nr software A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. 1040 nr software A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. 1040 nr software Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. 1040 nr software Basis adjustment for depletion. 1040 nr software   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. 1040 nr software Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). 1040 nr software For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. 1040 nr software You can treat two or more separate interests as one property or as separate properties. 1040 nr software See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. 1040 nr software There are two ways of figuring depletion on mineral property. 1040 nr software Cost depletion. 1040 nr software Percentage depletion. 1040 nr software Generally, you must use the method that gives you the larger deduction. 1040 nr software However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. 1040 nr software See Oil and Gas Wells , later. 1040 nr software Cost Depletion To figure cost depletion you must first determine the following. 1040 nr software The property's basis for depletion. 1040 nr software The total recoverable units of mineral in the property's natural deposit. 1040 nr software The number of units of mineral sold during the tax year. 1040 nr software Basis for depletion. 1040 nr software   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. 1040 nr software Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. 1040 nr software The residual value of land and improvements at the end of operations. 1040 nr software The cost or value of land acquired for purposes other than mineral production. 1040 nr software Adjusted basis. 1040 nr software   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. 1040 nr software Your adjusted basis can never be less than zero. 1040 nr software See Publication 551, Basis of Assets, for more information on adjusted basis. 1040 nr software Total recoverable units. 1040 nr software   The total recoverable units is the sum of the following. 1040 nr software The number of units of mineral remaining at the end of the year (including units recovered but not sold). 1040 nr software The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). 1040 nr software   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. 1040 nr software You must include ores and minerals that are developed, in sight, blocked out, or assured. 1040 nr software You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. 1040 nr software But see Elective safe harbor for owners of oil and gas property , later. 1040 nr software Number of units sold. 1040 nr software   You determine the number of units sold during the tax year based on your method of accounting. 1040 nr software Use the following table to make this determination. 1040 nr software    IF you  use . 1040 nr software . 1040 nr software . 1040 nr software THEN the units sold during the year are . 1040 nr software . 1040 nr software . 1040 nr software The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). 1040 nr software An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. 1040 nr software   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. 1040 nr software Figuring the cost depletion deduction. 1040 nr software   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. 1040 nr software Step Action Result 1 Divide your property's basis for depletion by total recoverable units. 1040 nr software Rate per unit. 1040 nr software 2 Multiply the rate per unit by units sold during the tax year. 1040 nr software Cost depletion deduction. 1040 nr software You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. 1040 nr software Elective safe harbor for owners of oil and gas property. 1040 nr software   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. 1040 nr software If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). 1040 nr software For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. 1040 nr software irs. 1040 nr software gov/pub/irs-irbs/irb04-10. 1040 nr software pdf. 1040 nr software   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. 1040 nr software The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. 1040 nr software The election, if made, is effective for the tax year in which it is made and all later years. 1040 nr software It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. 1040 nr software Once revoked, it cannot be re-elected for the next 5 years. 1040 nr software Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. 1040 nr software The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . 1040 nr software Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . 1040 nr software Gross income. 1040 nr software   When figuring percentage depletion, subtract from your gross income from the property the following amounts. 1040 nr software Any rents or royalties you paid or incurred for the property. 1040 nr software The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. 1040 nr software A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. 1040 nr software   Use the following fraction to figure the part of the bonus you must subtract. 1040 nr software No. 1040 nr software of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. 1040 nr software For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. 1040 nr software Taxable income limit. 1040 nr software   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. 1040 nr software   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. 1040 nr software These deductible items include, but are not limited to, the following. 1040 nr software Operating expenses. 1040 nr software Certain selling expenses. 1040 nr software Administrative and financial overhead. 1040 nr software Depreciation. 1040 nr software Intangible drilling and development costs. 1040 nr software Exploration and development expenditures. 1040 nr software Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. 1040 nr software Losses sustained. 1040 nr software   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. 1040 nr software Do not deduct any net operating loss deduction from the gross income from the property. 1040 nr software Corporations do not deduct charitable contributions from the gross income from the property. 1040 nr software If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. 1040 nr software See section 1. 1040 nr software 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. 1040 nr software Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. 1040 nr software You are either an independent producer or a royalty owner. 1040 nr software The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. 1040 nr software If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. 1040 nr software For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. 1040 nr software Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. 1040 nr software However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. 1040 nr software For information on figuring the deduction, see Figuring percentage depletion , later. 1040 nr software Refiners who cannot claim percentage depletion. 1040 nr software   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. 1040 nr software The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. 1040 nr software Related person. 1040 nr software   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. 1040 nr software For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. 1040 nr software A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. 1040 nr software For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. 1040 nr software The value of the outstanding stock of a corporation. 1040 nr software The interest in the profits or capital of a partnership. 1040 nr software The beneficial interests in an estate or trust. 1040 nr software Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. 1040 nr software Retailers who cannot claim percentage depletion. 1040 nr software   You cannot claim percentage depletion if both the following apply. 1040 nr software You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. 1040 nr software Through a retail outlet operated by you or a related person. 1040 nr software To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. 1040 nr software To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. 1040 nr software The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. 1040 nr software   For the purpose of determining if this rule applies, do not count the following. 1040 nr software Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. 1040 nr software Bulk sales of aviation fuels to the Department of Defense. 1040 nr software Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. 1040 nr software Related person. 1040 nr software   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. 1040 nr software Sales through a related person. 1040 nr software   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. 1040 nr software   You are not considered to be selling through a related person who is a retailer if all the following apply. 1040 nr software You do not have a significant ownership interest in the retailer. 1040 nr software You sell your production to persons who are not related to either you or the retailer. 1040 nr software The retailer does not buy oil or natural gas from your customers or persons related to your customers. 1040 nr software There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. 1040 nr software Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. 1040 nr software Transferees who cannot claim percentage depletion. 1040 nr software   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. 1040 nr software For a definition of the term “transfer,” see section 1. 1040 nr software 613A-7(n) of the regulations. 1040 nr software For a definition of the term “interest in proven oil or gas property,” see section 1. 1040 nr software 613A-7(p) of the regulations. 1040 nr software Figuring percentage depletion. 1040 nr software   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. 1040 nr software If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. 1040 nr software If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. 1040 nr software   In addition, there is a limit on the percentage depletion deduction. 1040 nr software See Taxable income limit , later. 1040 nr software Average daily production. 1040 nr software   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. 1040 nr software Partial interest. 1040 nr software   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. 1040 nr software   You have a partial interest in the production from a property if you have a net profits interest in the property. 1040 nr software To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. 1040 nr software To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. 1040 nr software Then multiply the total production from the property by your percentage participation to figure your share of the production. 1040 nr software Example. 1040 nr software Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. 1040 nr software During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. 1040 nr software Javier had expenses of $90,000 attributable to the property. 1040 nr software The property generated a net profit of $110,000 ($200,000 − $90,000). 1040 nr software Pablo received income of $22,000 ($110,000 × . 1040 nr software 20) for his net profits interest. 1040 nr software Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). 1040 nr software Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). 1040 nr software Depletable oil or natural gas quantity. 1040 nr software   Generally, your depletable oil quantity is 1,000 barrels. 1040 nr software Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. 1040 nr software If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. 1040 nr software Example. 1040 nr software You have both oil and natural gas production. 1040 nr software To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. 1040 nr software Your depletable natural gas quantity is 2. 1040 nr software 16 million cubic feet of gas (360 × 6000). 1040 nr software You must reduce your depletable oil quantity to 640 barrels (1000 − 360). 1040 nr software If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. 1040 nr software Also, see Notice 2012-50, available at www. 1040 nr software irs. 1040 nr software gov/irb/2012–31_IRB/index. 1040 nr software html. 1040 nr software Business entities and family members. 1040 nr software   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. 1040 nr software Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). 1040 nr software You and your spouse and minor children. 1040 nr software A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. 1040 nr software Controlled group of corporations. 1040 nr software   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. 1040 nr software They share the depletable quantity. 1040 nr software A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. 1040 nr software ” Gross income from the property. 1040 nr software   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. 1040 nr software If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. 1040 nr software   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. 1040 nr software   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. 1040 nr software Average daily production exceeds depletable quantities. 1040 nr software   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. 1040 nr software Figure your average daily production of oil or natural gas for the year. 1040 nr software Figure your depletable oil or natural gas quantity for the year. 1040 nr software Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. 1040 nr software Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). 1040 nr software This is your depletion allowance for that property for the year. 1040 nr software Taxable income limit. 1040 nr software   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. 1040 nr software 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. 1040 nr software For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. 1040 nr software 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. 1040 nr software You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. 1040 nr software Add it to your depletion allowance (before applying any limits) for the following year. 1040 nr software Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. 1040 nr software (However, see Electing large partnerships must figure depletion allowance , later. 1040 nr software ) Each partner or shareholder must decide whether to use cost or percentage depletion. 1040 nr software If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. 1040 nr software Partner's or shareholder's adjusted basis. 1040 nr software   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. 1040 nr software The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. 1040 nr software   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. 1040 nr software However, in some cases, it is figured according to the partner's interest in partnership income. 1040 nr software   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. 1040 nr software Recordkeeping. 1040 nr software Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. 1040 nr software The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. 1040 nr software The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. 1040 nr software Reporting the deduction. 1040 nr software   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). 1040 nr software Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). 1040 nr software The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. 1040 nr software The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. 1040 nr software Form 6198, At-Risk Limitations. 1040 nr software Form 8582, Passive Activity Loss Limitations. 1040 nr software Electing large partnerships must figure depletion allowance. 1040 nr software   An electing large partnership, rather than each partner, generally must figure the depletion allowance. 1040 nr software The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. 1040 nr software Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. 1040 nr software   An electing large partnership is one that meets both the following requirements. 1040 nr software The partnership had 100 or more partners in the preceding year. 1040 nr software The partnership chooses to be an electing large partnership. 1040 nr software Disqualified persons. 1040 nr software   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. 1040 nr software Disqualified persons must figure it themselves, as explained earlier. 1040 nr software   All the following are disqualified persons. 1040 nr software Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 1040 nr software Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 1040 nr software Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. 1040 nr software Average daily production is discussed earlier. 1040 nr software Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. 1040 nr software Natural gas sold under a fixed contract. 1040 nr software   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. 1040 nr software This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. 1040 nr software The contract must have been in effect from February 1, 1975, until the date of sale of the gas. 1040 nr software Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. 1040 nr software Natural gas from geopressured brine. 1040 nr software   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. 1040 nr software This is natural gas that is both the following. 1040 nr software Produced from a well you began to drill after September 1978 and before 1984. 1040 nr software Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. 1040 nr software Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. 1040 nr software Mines and other natural deposits. 1040 nr software   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. 1040 nr software   The following is a list of the percentage depletion rates for the more common minerals. 1040 nr software DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. 1040 nr software Corporate deduction for iron ore and coal. 1040 nr software   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). 1040 nr software Gross income from the property. 1040 nr software   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. 1040 nr software Mining includes all the following. 1040 nr software Extracting ores or minerals from the ground. 1040 nr software Applying certain treatment processes described later. 1040 nr software Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. 1040 nr software Excise tax. 1040 nr software   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. 1040 nr software Extraction. 1040 nr software   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. 1040 nr software This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. 1040 nr software Treatment processes. 1040 nr software   The processes included as mining depend on the ore or mineral mined. 1040 nr software To qualify as mining, the treatment processes must be applied by the mine owner or operator. 1040 nr software For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. 1040 nr software Transportation of more than 50 miles. 1040 nr software   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. 1040 nr software    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. 1040 nr software Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. 1040 nr software For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. 1040 nr software irs. 1040 nr software gov/irb/2013-01_IRB/ar11. 1040 nr software html. 1040 nr software Disposal of coal or iron ore. 1040 nr software   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. 1040 nr software You disposed of it after holding it for more than 1 year. 1040 nr software You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. 1040 nr software Treat any gain on the disposition as a capital gain. 1040 nr software Disposal to related person. 1040 nr software   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. 1040 nr software A related person (as listed in chapter 2 of Publication 544). 1040 nr software A person owned or controlled by the same interests that own or control you. 1040 nr software Geothermal deposits. 1040 nr software   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. 1040 nr software A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. 1040 nr software For percentage depletion purposes, a geothermal deposit is not considered a gas well. 1040 nr software   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. 1040 nr software See Gross income from the property , earlier, under Oil and Gas Wells. 1040 nr software Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. 1040 nr software Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 1040 nr software A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. 1040 nr software Bonuses and advanced royalties. 1040 nr software   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. 1040 nr software If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. 1040 nr software Figuring cost depletion. 1040 nr software   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. 1040 nr software To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. 1040 nr software Figuring percentage depletion. 1040 nr software   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . 1040 nr software Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. 1040 nr software However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. 1040 nr software Ending the lease. 1040 nr software   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. 1040 nr software Do this for the year the lease ends or is abandoned. 1040 nr software Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. 1040 nr software   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. 1040 nr software Include this amount in income for the year the lease ends. 1040 nr software Increase your adjusted basis in the property by the amount you include in income. 1040 nr software Delay rentals. 1040 nr software   These are payments for deferring development of the property. 1040 nr software Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. 1040 nr software These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. 1040 nr software Timber You can figure timber depletion only by the cost method. 1040 nr software Percentage depletion does not apply to timber. 1040 nr software Base your depletion on your cost or other basis in the timber. 1040 nr software Your cost does not include the cost of land or any amounts recoverable through depreciation. 1040 nr software Depletion takes place when you cut standing timber. 1040 nr software You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. 1040 nr software Figuring cost depletion. 1040 nr software   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. 1040 nr software Timber units. 1040 nr software   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. 1040 nr software You measure the timber using board feet, log scale, cords, or other units. 1040 nr software If you later determine that you have more or less units of timber, you must adjust the original estimate. 1040 nr software   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. 1040 nr software Depletion unit. 1040 nr software   You figure your depletion unit each year by taking the following steps. 1040 nr software Determine your cost or adjusted basis of the timber on hand at the beginning of the year. 1040 nr software Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. 1040 nr software Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. 1040 nr software Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. 1040 nr software Divide the result of (2) by the result of (3). 1040 nr software This is your depletion unit. 1040 nr software Example. 1040 nr software You bought a timber tract for $160,000 and the land was worth as much as the timber. 1040 nr software Your basis for the timber is $80,000. 1040 nr software Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). 1040 nr software If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). 1040 nr software When to claim depletion. 1040 nr software   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). 1040 nr software Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. 1040 nr software The inventory is your basis for determining gain or loss in the tax year you sell the timber products. 1040 nr software Example. 1040 nr software The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. 1040 nr software You would deduct $20,000 of the $40,000 depletion that year. 1040 nr software You would add the remaining $20,000 depletion to your closing inventory of timber products. 1040 nr software Electing to treat the cutting of timber as a sale or exchange. 1040 nr software   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. 1040 nr software You must make the election on your income tax return for the tax year to which it applies. 1040 nr software If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. 1040 nr software You generally report the gain as long-term capital gain. 1040 nr software The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. 1040 nr software For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 1040 nr software   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. 1040 nr software The prior election (and revocation) is disregarded for purposes of making a subsequent election. 1040 nr software See Form T (Timber), Forest Activities Schedule, for more information. 1040 nr software Form T. 1040 nr software   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. 1040 nr software Prev  Up  Next   Home   More Online Publications
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The 1040 Nr Software

1040 nr software Index A Accrual foreign taxes, adjustments, You may have to post a bond. 1040 nr software Accrual method of accounting, Accrual method of accounting. 1040 nr software Allocation Carryback/carryover between spouses, Allocations Between Spouses Foreign losses, Foreign Losses Foreign taxes, Allocation of Foreign Taxes U. 1040 nr software S. 1040 nr software losses, U. 1040 nr software S. 1040 nr software Losses Alternative minimum tax, Reminders Amended return, Claim for Refund American Samoa, resident of, Possession Exclusion Assistance (see Tax help) B Bankruptcy, effect of, Effect of bankruptcy or insolvency. 1040 nr software Beneficiary, Partner or S corporation shareholder. 1040 nr software Bond, income tax, You may have to post a bond. 1040 nr software Boycotting countries, Taxes From International Boycott Operations C Capital gains and losses, Capital Gains and Losses Carryback and carryover, Carrybacks and carryovers. 1040 nr software Allocations between spouses, Allocations Between Spouses Claim for refund, Time Limit on Tax Assessment Joint return, Married Couples Joint return–deduction year, Joint Return Filed in a Deduction Year Taxes all credited or deducted, Claim for Refund Time limit on tax assessment, Time Limit on Tax Assessment Choice to take credit or deduction Changing your choice, Making or Changing Your Choice Choice applied to all qualified foreign taxes, Choice Applies to All Qualified Foreign Taxes Claim for refund, Claim for Refund Classes of gross income, Classes of gross income. 1040 nr software Compensation for labor or personal services, Determining the Source of Compensation for Labor or Personal Services Geographical basis, Geographical basis. 1040 nr software Comprehensive example, Comprehensive Example — Filled-In Form 1116 Controlled foreign corporation shareholder, Controlled foreign corporation shareholder. 1040 nr software , Income from controlled foreign corporations. 1040 nr software Covered asset acquisition, Covered Asset Acquisition Credit How to claim, How To Claim the Credit How to figure, How To Figure the Credit Limit on, Limit on the Credit Credit for taxes paid or accrued, Credit for Taxes Paid or Accrued D Deduction for foreign taxes that are not income taxes, Foreign taxes that are not income taxes. 1040 nr software Distributions Lump-sum, Lump-Sum Distribution Dividends Taxes on, Taxes Imposed on Certain Dividends Dual-capacity taxpayers, Dual-capacity taxpayers. 1040 nr software E Economic benefits, Specific economic benefit. 1040 nr software Examples Comprehensive, Comprehensive Example — Filled-In Form 1116 Simple, Simple Example — Filled-In Form 1116 Excess limit, Carryback and Carryover Exchange rates, Foreign Currency and Exchange Rates Excluded income Foreign earned, Foreign Earned Income and Housing Exclusions Taxes on, Taxes on Excluded Income Exemption from foreign tax credit limit, Exemption from foreign tax credit limit. 1040 nr software Export financing interest, Export financing interest. 1040 nr software Extraterritorial income, Extraterritorial Income Exclusion F Financial services income, Financial services income. 1040 nr software Foreign corporation–U. 1040 nr software S. 1040 nr software shareholders, filing requirements, Taxes of U. 1040 nr software S. 1040 nr software Persons Controlling Foreign Corporations and Partnerships Foreign country, Foreign country. 1040 nr software Foreign currency and exchange rates, Foreign Currency and Exchange Rates Foreign income, translating, Translating foreign currency into U. 1040 nr software S. 1040 nr software dollars. 1040 nr software Foreign losses Allocation of, Foreign Losses Recapture of, Recapture of Prior Year Overall Foreign Loss Accounts Foreign mineral income, taxes on, Taxes on Foreign Mineral Income Foreign oil and gas extraction income, taxes on, Taxes on Combined Foreign Oil and Gas Income Foreign partnerships–U. 1040 nr software S. 1040 nr software partners, filing requirement, Taxes of U. 1040 nr software S. 1040 nr software Persons Controlling Foreign Corporations and Partnerships Foreign tax refund, Foreign tax refund. 1040 nr software , Foreign tax refund. 1040 nr software Foreign tax(es) Allocation to income categories, Allocation of Foreign Taxes For which you cannot take a credit, Foreign Taxes for Which You Cannot Take a Credit Imposed on foreign refund, Foreign tax imposed on foreign refund. 1040 nr software Qualifying for credit, What Foreign Taxes Qualify for the Credit? Redetermination, Foreign Tax Redetermination Refund, Foreign tax imposed on foreign refund. 1040 nr software Form 1040X, Claim for Refund 1116, Form 1116, Simple Example — Filled-In Form 1116, Comprehensive Example — Filled-In Form 1116 5471, Taxes of U. 1040 nr software S. 1040 nr software Persons Controlling Foreign Corporations and Partnerships 5713, Form 5713 required. 1040 nr software 8833, Report required. 1040 nr software 8865, Taxes of U. 1040 nr software S. 1040 nr software Persons Controlling Foreign Corporations and Partnerships 8873, Extraterritorial Income Exclusion Free tax services, Free help with your tax return. 1040 nr software Functional currency, Translating foreign currency into U. 1040 nr software S. 1040 nr software dollars. 1040 nr software G General category income, separate limit, General Category Income H Help (see Tax help) High-taxed income, High-taxed income. 1040 nr software I Income from sources in U. 1040 nr software S. 1040 nr software possessions, Determining the source of income from U. 1040 nr software S. 1040 nr software possessions. 1040 nr software Income re-sourced by treaty, separate limit, Certain Income Re-Sourced By Treaty Income tax, Income Tax Income tax bond, You may have to post a bond. 1040 nr software Interest, Penalties and interest. 1040 nr software Interest expense, apportioning, Interest expense. 1040 nr software International boycott, Taxes From International Boycott Operations Itemized deduction, Taxes for Which You Can Only Take an Itemized Deduction J Joint return Carryback and carryover, Married Couples Credit based on foreign tax of both spouses, Joint return. 1040 nr software Filed in a deduction year, Joint Return Filed in a Deduction Year L Levy, Income Tax Limit on credit, Limit on the Credit Losses, foreign, Foreign Losses Allocation of, Foreign Losses Recapture of, Recapture of Prior Year Overall Foreign Loss Accounts Losses, U. 1040 nr software S. 1040 nr software , U. 1040 nr software S. 1040 nr software Losses Allocation of, U. 1040 nr software S. 1040 nr software Losses Lump-sum distributions, Lump-Sum Distribution M Making or changing your choice, Making or Changing Your Choice Married couples Carryback and carryover, Married Couples Joint return, Joint return. 1040 nr software Mineral income, foreign,, Taxes on Foreign Mineral Income Mutual fund distributions, Mutual fund shareholder. 1040 nr software , Passive income. 1040 nr software Mutual fund shareholder, Mutual fund shareholder. 1040 nr software N Nonresident aliens, Nonresident Aliens Notice to the IRS of change in tax, Notice to the Internal Revenue Service (IRS) of Redetermination O Overall foreign loss, Overall foreign loss. 1040 nr software P Partner, Partner or S corporation shareholder. 1040 nr software , Partnership distributive share. 1040 nr software , Foreign Taxes From a Partnership or an S Corporation Passive category income, Passive Category Income Penalties, Failure-to-notify penalty. 1040 nr software , Penalties and interest. 1040 nr software Failure to file Form 5471, 8865, Penalty for not filing Form 5471 or Form 8865. 1040 nr software Failure to file Form 5713, Penalty for failure to file. 1040 nr software Failure to notify, foreign tax change, Failure-to-notify penalty. 1040 nr software Failure to report treaty information, Report required. 1040 nr software Pension, employment, and disability fund payments, Pension, unemployment, and disability fund payments. 1040 nr software Personal property, sales or exchanges of, Determining the Source of Income From the Sales or Exchanges of Certain Personal Property Possession exclusion, Possession Exclusion Publications (see Tax help) Purchase or sale of oil or gas, taxes in connection with, Taxes in Connection With the Purchase or Sale of Oil or Gas Q Qualified business unit, Translating foreign currency into U. 1040 nr software S. 1040 nr software dollars. 1040 nr software Qualified dividends, Capital Gains and Losses R Rate of exchange, Rate of exchange for foreign taxes paid. 1040 nr software Recapture of foreign losses, Recapture of Prior Year Overall Foreign Loss Accounts Records to keep, Records To Keep Redetermination of foreign tax, Foreign Tax Redetermination Refund claims, time limit, Time Limit on Refund Claims Refund, foreign tax, Foreign tax refund. 1040 nr software Reporting requirements (international boycott), Reporting requirements. 1040 nr software Resident aliens, Resident Aliens S S corporation shareholder, Partner or S corporation shareholder. 1040 nr software , Foreign Taxes From a Partnership or an S Corporation Sanctioned countries, Taxes Imposed By Sanctioned Countries (Section 901(j) Income) Section 901(j) income, Section 901(j) Income Section 901(j) sanctioned income, Taxes Imposed By Sanctioned Countries (Section 901(j) Income) Separate limit income, Separate Limit Income General category income, General Category Income Income re-sourced by treaty, Certain Income Re-Sourced By Treaty Lump-sum distribution, Lump-Sum Distribution Passive category income, Passive Category Income Section 901(j) income, Section 901(j) Income Shareholder, Mutual fund shareholder. 1040 nr software Simple example, Simple Example — Filled-In Form 1116 Soak-up taxes, Soak-up taxes. 1040 nr software Social security taxes, Pension, unemployment, and disability fund payments. 1040 nr software Source of compensation for labor or personal services Alternative basis, Alternative basis. 1040 nr software Multi-year compensation, Multi-year compensation. 1040 nr software Time basis, Time basis. 1040 nr software Transportation income, Transportation Income State income taxes, State income taxes. 1040 nr software Subsidy, Subsidy received. 1040 nr software T Tax help, How To Get Tax Help Tax treaties, Tax Treaties Taxable income from sources outside the U. 1040 nr software S. 1040 nr software , determination of, Determining Taxable Income From Sources Outside the United States Taxes Excluded income, Foreign Earned Income and Housing Exclusions In lieu of income taxes, Taxes in Lieu of Income Taxes On dividends, Taxes Imposed on Certain Dividends Paid or accrued, Credit for Taxes Paid or Accrued Withheld on income or gain, Taxes Withheld on Income or Gain (Other Than Dividends) Taxes related to a foreign tax credit splitting event, Taxes Related to a Foreign Tax Credit Splitting Event Time limit Refund claims, Time Limit on Refund Claims Tax assessment, Time Limit on Tax Assessment Translating foreign currency, Translating foreign currency into U. 1040 nr software S. 1040 nr software dollars. 1040 nr software U U. 1040 nr software S. 1040 nr software citizens, U. 1040 nr software S. 1040 nr software Citizens U. 1040 nr software S. 1040 nr software losses Allocation of, U. 1040 nr software S. 1040 nr software Losses U. 1040 nr software S. 1040 nr software possessions, U. 1040 nr software S. 1040 nr software possessions. 1040 nr software Unused foreign tax credits, carryback or carryover, Carrybacks and carryovers. 1040 nr software , Carryback and Carryover W Wages, Wages completely excluded. 1040 nr software When refunds can be claimed, Time Limit on Refund Claims When tax can be assessed, Time Limit on Tax Assessment Who can take the credit, Who Can Take the Credit? Why choose the credit, Why Choose the Credit? Prev  Up     Home   More Online Publications