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Free State Filling

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Free State Filling

Free state filling Index A Additional child tax credit, Additional child tax credit. Free state filling Additional Medicare Tax, What's New, Useful Items - You may want to see:, Additional Medicare Tax. Free state filling , Additional Medicare Tax. Free state filling , Additional Medicare Tax. Free state filling , Additional Medicare Tax. Free state filling , Additional Medicare Tax. Free state filling , Additional Medicare Tax Aliens Nonresident (see specific possession) Resident (see specific possession) American Samoa, American Samoa, Double Taxation Form 4563, Form 4563. Free state filling Armed forces, U. Free state filling S. Free state filling Bona fide residence, Special rule for members of the U. Free state filling S. Free state filling Armed Forces. Free state filling Armed Forces, U. Free state filling S. Free state filling Earned income credit, Earned income credit. Free state filling , U. Free state filling S. Free state filling Armed Forces. Free state filling Source of income, U. Free state filling S. Free state filling Armed Forces. Free state filling Spouse, Special rule for civilian spouse of active duty member of the U. Free state filling S. Free state filling Armed Forces. Free state filling , Civilian spouse of active duty member of the U. Free state filling S. Free state filling Armed Forces. Free state filling , Civilian spouse of active duty member of the U. Free state filling S. Free state filling Armed Forces. Free state filling , Civilian spouse of active duty member of the U. Free state filling S. Free state filling Armed Forces. Free state filling , Civilian spouse of active duty member of the U. Free state filling S. Free state filling Armed Forces. Free state filling , Civilian spouse of active duty member of the U. Free state filling S. Free state filling Armed Forces. Free state filling , Civilian spouse of active duty member of the U. Free state filling S. Free state filling Armed Forces. Free state filling Assistance (see Tax help) Awards and prizes, Scholarships, Fellowships, Grants, Prizes, and Awards B Bankruptcy cases, Chapter 11, Chapter 11 Bankruptcy cases. Free state filling Bona fide residence, Bona Fide Residence, Worldwide gross income. Free state filling Closer connection, Closer Connection, Exception for Year of Move Year of move, Exception for Year of Move, Special Rules in the Year of a Move, Puerto Rico Presence test, Presence Test, Charitable sports event, Charitable Sports Event Child, defined, Days of presence in a possession. Free state filling Nonresident aliens, Special rule for nonresident aliens. Free state filling Possession, days in, Days of presence in a possession. Free state filling Qualifying medical treatment, Qualifying Medical Treatment Significant connection, Significant Connection, Student, Student U. Free state filling S. Free state filling , days in, Days of presence in the United States. Free state filling Reporting change in residency status, Reporting a Change in Bona Fide Residence, Worldwide gross income. Free state filling Penalty for not reporting, Penalty for Not Filing Form 8898 Tax home, Tax Home, Year of Move Exceptions, Exceptions Government officials, Students and Government Officials Seafarers, Seafarers Students, Students and Government Officials Year of move, Year of Move, Special Rules in the Year of a Move, Puerto Rico Tests to meet, Bona Fide Residence U. Free state filling S. Free state filling Armed Forces, Special rule for members of the U. Free state filling S. Free state filling Armed Forces. Free state filling Year of move, Special Rules in the Year of a Move, Puerto Rico Puerto Rico, Puerto Rico C Change in residency status, reporting, Reporting a Change in Bona Fide Residence, Worldwide gross income. Free state filling Penalty for not reporting, Penalty for Not Filing Form 8898 Change of address, Reminders Charitable sports event, Charitable Sports Event Child tax credit, additional, Additional child tax credit. Free state filling Child, defined, Days of presence in a possession. Free state filling Closer connection, Closer Connection, Exception for Year of Move Year of move, Exception for Year of Move, Special Rules in the Year of a Move, Puerto Rico CNMI tax return, Nonresident Alien (Other Than a Bona Fide Resident of the CNMI) Commonwealth of Puerto Rico, The Commonwealth of Puerto Rico, Double Taxation Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of the Northern Mariana Islands, Double Taxation Form 5074, Form 5074. Free state filling Compensation for labor or personal services, Compensation for Labor or Personal Services, Pensions. Free state filling Alternative basis, Alternative basis. Free state filling Multi-year compensation, Multi-year compensation. Free state filling Time basis, Time basis. Free state filling Competent Authority Assistance, Competent Authority Assistance How to make your request, How to make your request. Free state filling Credit or Refund File a claim for credit or refund of any overpayment sought, Credit or Refund Credits Earned income, Reminders, Earned income credit. Free state filling Foreign tax, U. Free state filling S. Free state filling Government employees. Free state filling , Moving expense deduction. Free state filling , Foreign Tax Credit if Possession Income Is Excluded D Deductions IRA contribution, Individual retirement arrangement (IRA) deduction. Free state filling Moving expenses U. Free state filling S. Free state filling return, Moving expense deduction. Free state filling Personal exemptions, Personal Exemptions Self-employment tax, one-half of, Self-employment tax deduction. Free state filling Standard deduction, Standard Deduction Deductions if Possession Income Is Excluded, Deductions if Possession Income Is Excluded Dispositions of certain property, special rules for, Special Rules for Gains From Dispositions of Certain Property Dividends, Dividends. Free state filling Double taxation, inconsistent tax treatment Mutual agreement procedure, Double Taxation E Earned income credit, Reminders, Earned income credit. Free state filling Effectively connected income, Effectively Connected Income Estimated tax payments, Estimated tax payments. Free state filling , Estimated tax payments. Free state filling , Estimated tax payments. Free state filling , Estimated tax payments. Free state filling , Estimated tax payments. Free state filling , Estimated Tax Exemptions, deduction for, Personal Exemptions Extension of time to file U. Free state filling S. Free state filling return, Extension of Time To File USVI, Extension of time to file. Free state filling F Filing requirements American Samoa, American Samoa, Double Taxation Form 4563, Form 4563. Free state filling CNMI, The Commonwealth of the Northern Mariana Islands, Double Taxation Form 5074, Form 5074. Free state filling Guam, Guam, Double Taxation Form 5074, Form 5074. Free state filling Possessions, Filing Information for Individuals in Certain U. Free state filling S. Free state filling Possessions, Double Taxation Puerto Rico, The Commonwealth of Puerto Rico, Double Taxation U. Free state filling S. Free state filling return, Filing Requirement if Possession Income Is Excluded USVI, The U. Free state filling S. Free state filling Virgin Islands, Double Taxation Form 1040INFO, Form 1040INFO. Free state filling Form 4868, Extension of time to file. Free state filling Form 8689, Form 8689. Free state filling Foreign tax credit, Foreign Tax Credit if Possession Income Is Excluded Form 1040-ES, Estimated Tax 1040-PR, Additional child tax credit. Free state filling 1040-SS, Self-employment tax. Free state filling , Additional child tax credit. Free state filling , Self-employment tax. Free state filling , Self-employment tax. Free state filling , Self-employment tax. Free state filling 1040INFO, Form 1040INFO. Free state filling 1040NR, Nonresident alien. Free state filling , Nonresident alien. Free state filling , Nonresident Alien (Other Than a Bona Fide Resident of the CNMI), Nonresident Alien (Other Than a Bona Fide Resident of Guam), Nonresident Alien (Other Than a Bona Fide Resident of the USVI) 1116, U. Free state filling S. Free state filling Government employees. Free state filling , Moving expense deduction. Free state filling , Foreign Tax Credit if Possession Income Is Excluded 3903, Moving expense deduction. Free state filling , Moving expense deduction. Free state filling , Moving expense deduction. Free state filling , Moving expense deduction. Free state filling , Moving expense deduction. Free state filling , Moving expense deduction. Free state filling 4563, Form 4563. Free state filling 4563, illustrated example, Illustrated Example of Form 4563, Line 15. Free state filling , 4868, Extension of time to file. Free state filling , Automatic 6-Month Extension 5074, Form 5074. Free state filling , Moving expense deduction. Free state filling , Form 5074. Free state filling , Moving expense deduction. Free state filling 5074, illustrated example, Illustrated Example of Form 5074, Part III. Free state filling , 8689, Form 8689. Free state filling 8689, illustrated example, Illustrated Example of Form 8689, Part IV. Free state filling , 8822, Reminders 8898, Reporting a Change in Bona Fide Residence, Penalty for Not Filing Form 8898 Schedule A (Form 1040), Itemized Deductions Schedule SE (Form 1040), Self-Employment Tax Free tax services, Free help with your tax return. Free state filling Fringe benefits, Certain fringe benefits sourced on a geographical basis. Free state filling G Government employees, U. Free state filling S. Free state filling (see specific possession) Grants, Scholarships, Fellowships, Grants, Prizes, and Awards Guam, Guam, Double Taxation Form 5074, Form 5074. Free state filling H Help (see Tax help) I Income Awards and prizes, Scholarships, Fellowships, Grants, Prizes, and Awards Effectively connected income, Effectively Connected Income Grants, Scholarships, Fellowships, Grants, Prizes, and Awards Investments, Investment Income, Royalties. Free state filling Labor or personal services, Compensation for Labor or Personal Services, Pensions. Free state filling Pensions, Pensions. Free state filling Sales or other dispositions of property, Sales or Other Dispositions of Property, Special Rules for Gains From Dispositions of Certain Property Scholarships and fellowships, Scholarships, Fellowships, Grants, Prizes, and Awards Services performed partly within a possession, Services performed partly inside and partly outside a relevant possession. Free state filling , Alternative basis. Free state filling Source of, Possession Source Income U. Free state filling S. Free state filling Armed Forces, U. Free state filling S. Free state filling Armed Forces. Free state filling U. Free state filling S. Free state filling income rule, U. Free state filling S. Free state filling income rule. Free state filling Income from American Samoa or Puerto Rico excluded. Free state filling , Income from American Samoa or Puerto Rico excluded. Free state filling Deductions if income from American Samoa or Puerto Rico excluded, Deductions if Possession Income Is Excluded Interest income, Interest income. Free state filling Inventory Sales or other dispositions of, Inventory. Free state filling Investment income, Investment Income, Royalties. Free state filling IRA deduction, Individual retirement arrangement (IRA) deduction. Free state filling Itemized deductions, Itemized Deductions M Medical treatment, qualifying, Qualifying Medical Treatment Moving expense deduction U. Free state filling S. Free state filling return, Moving expense deduction. Free state filling N Net Investment Income Tax, What's New, Useful Items - You may want to see:, Net Investment Income Tax. Free state filling , Net Investment Income Tax. Free state filling , Net Investment Income Tax Nonresident alien (see specific possession) Northern Mariana Islands (CNMI), The Commonwealth of the Northern Mariana Islands, Double Taxation P Paying your taxes, Paying Your Taxes Penalty Failure to report change in residency status, Penalty for Not Filing Form 8898 Pension income, Pensions. Free state filling Permanent home, Permanent home. Free state filling Personal exemptions, deduction for, Personal Exemptions Personal property Sales or other dispositions of, Personal property. Free state filling Personal service income, Compensation for Labor or Personal Services, Pensions. Free state filling Possession source income, Possession Source Income, Effectively Connected Income Awards and prizes, Scholarships, Fellowships, Grants, Prizes, and Awards Effectively connected income, Effectively Connected Income Grants, Scholarships, Fellowships, Grants, Prizes, and Awards Investment income, Investment Income, Royalties. Free state filling Labor or personal services, Compensation for Labor or Personal Services, Pensions. Free state filling Pensions, Pensions. Free state filling Sales or other dispositions of property, Sales or Other Dispositions of Property, Special Rules for Gains From Dispositions of Certain Property Scholarships and fellowships, Scholarships, Fellowships, Grants, Prizes, and Awards Services performed partly within a possession, Services performed partly inside and partly outside a relevant possession. Free state filling , Alternative basis. Free state filling U. Free state filling S. Free state filling Armed Forces, U. Free state filling S. Free state filling Armed Forces. Free state filling U. Free state filling S. Free state filling income rule, U. Free state filling S. Free state filling income rule. Free state filling Possessions, list of, Introduction Presence test, Presence Test, Charitable sports event, Charitable Sports Event Child, defined, Days of presence in a possession. Free state filling Nonresident aliens, Special rule for nonresident aliens. Free state filling Possession, days in, Days of presence in a possession. Free state filling Qualifying medical treatment, Qualifying Medical Treatment Significant connection, Significant Connection, Permanent home, Permanent home. Free state filling Student, Student U. Free state filling S. Free state filling , days in, Days of presence in the United States. Free state filling Prizes, Scholarships, Fellowships, Grants, Prizes, and Awards Publications (see Tax help) Puerto Rico, The Commonwealth of Puerto Rico, Double Taxation Additional child tax credit, Additional child tax credit. Free state filling Bona fide residence Year of move, Puerto Rico Q Qualifying medical treatment, Qualifying Medical Treatment R Real property Sales or other dispositions of, Real property. Free state filling Reminders Earned income credit (EIC). Free state filling , Reminders Electronic filing. Free state filling , Reminders Rental income, Rental income. Free state filling Resident alien (see specific possession) Royalty income, Royalties. Free state filling S Scholarships and fellowships, Scholarships, Fellowships, Grants, Prizes, and Awards Self-employment tax U. Free state filling S. Free state filling return, Self-Employment Tax Self-employment tax deduction, Self-employment tax deduction. Free state filling Services performed partly within a possession, Services performed partly inside and partly outside a relevant possession. Free state filling , Alternative basis. Free state filling Significant connection, Significant Connection, Source of income, Possession Source Income, Effectively Connected Income Awards and prizes, Scholarships, Fellowships, Grants, Prizes, and Awards Effectively connected income, Effectively Connected Income Grants, Scholarships, Fellowships, Grants, Prizes, and Awards Investment income, Investment Income, Royalties. Free state filling Labor or personal services, Compensation for Labor or Personal Services, Pensions. Free state filling Pensions, Pensions. Free state filling Sales or other dispositions of property, Sales or Other Dispositions of Property, Special Rules for Gains From Dispositions of Certain Property Scholarships and fellowships, Scholarships, Fellowships, Grants, Prizes, and Awards Services performed partly within a possession, Services performed partly inside and partly outside a relevant possession. Free state filling , Alternative basis. Free state filling U. Free state filling S. Free state filling Armed Forces, U. Free state filling S. Free state filling Armed Forces. Free state filling U. Free state filling S. Free state filling income rule, U. Free state filling S. Free state filling income rule. Free state filling Special rules for filing (see specific possession) Special rules for gains from dispositions of certain property, Special Rules for Gains From Dispositions of Certain Property Sports event, charitable, Charitable Sports Event Standard deduction, Standard Deduction Statement of Specified Foreign Financial Assets, Form 8938,, Reminders Student, Student T Tables U. Free state filling S. Free state filling filing requirements for most taxpayers (Table 4-1), U. Free state filling S. Free state filling source of income (Table 2-1), Table 2-1. Free state filling General Rules for Determining U. Free state filling S. Free state filling Source of Income Tax help, How To Get Tax Help Tax home, Tax Home, Year of Move Exceptions, Exceptions Government officials, Students and Government Officials Seafarers, Seafarers Students, Students and Government Officials Year of move, Year of Move, Special Rules in the Year of a Move, Puerto Rico Taxpayer Clinics, Low Income Taxpayer Clinics, Low Income Taxpayer Clinics (LITCs). Free state filling TTY/TDD information, How To Get Tax Help U U. Free state filling S. Free state filling Armed Forces Bona fide residence, Special rule for members of the U. Free state filling S. Free state filling Armed Forces. Free state filling Earned income credit, Earned income credit. Free state filling , U. Free state filling S. Free state filling Armed Forces. Free state filling Source of income, U. Free state filling S. Free state filling Armed Forces. Free state filling Spouse, Special rule for civilian spouse of active duty member of the U. Free state filling S. 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Free state filling taxation of possession income, to get information on, Introduction U. Free state filling S. Free state filling Virgin Islands (USVI), The U. Free state filling S. Free state filling Virgin Islands, Double Taxation Form 1040INFO, Form 1040INFO. Free state filling Form 4868, Extension of time to file. Free state filling Form 8689, Form 8689. Free state filling V Virgin Islands, U. Free state filling S. Free state filling , The U. Free state filling S. Free state filling Virgin Islands, Double Taxation W When to file U. Free state filling S. Free state filling return, When To File, Extension beyond 2 months. Free state filling Where To File U. Free state filling S. Free state filling return, Where To File Which return to file (see specific possession) Who must file U. Free state filling S. Free state filling return, Filing Requirement if Possession Income Is Excluded Prev  Up     Home   More Online Publications
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IRS Urges Taxpayers to Avoid Becoming Victims of Tax Scams

IR-2011-73, July 11, 2011

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WASHINGTON — The Internal Revenue Service today encouraged taxpayers to guard against being misled by unscrupulous individuals trying to persuade them to file false claims for tax credits or rebates.

The IRS has noted an increase in tax-return-related scams, frequently involving unsuspecting taxpayers who normally do not have a filing requirement in the first place. These taxpayers are led to believe they should file a return with the IRS for tax credits, refunds or rebates for which they are not really entitled. Many of these recent scams have been targeted in the South and Midwest.

Most paid tax return preparers provide honest and professional service, but there are some who engage in fraud and other illegal activities.   Unscrupulous promoters deceive people into paying for advice on how to file false claims. Some promoters may charge unreasonable amounts for preparing legitimate returns that could have been prepared for free by the IRS or IRS sponsored Volunteer Income Tax Assistance partners. In other situations, identity theft is involved.

Taxpayers should be wary of any of the following:

  • Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits.
  • Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS.
  • Unfamiliar for-profit tax services teaming up with local churches.
  • Home-made flyers and brochures implying credits or refunds are available without proof of eligibility.
  • Offers of free money with no documentation required.
  • Promises of refunds for “Low Income – No Documents Tax Returns.”
  • Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit. 
  • Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income.

In some cases non-existent Social Security refunds or rebates have been the bait used by the con artists.  In other situations, taxpayers deserve the tax credits they are promised but the preparer uses fictitious or inflated information on the return which results in a fraudulent return.

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. These schemes also often spread by word of mouth among unsuspecting and well-intentioned people telling their friends and relatives. 
Promoters of these scams often prey upon low income individuals and the elderly. 

They build false hopes and charge people good money for bad advice.  In the end, the victims discover their claims are rejected or the refund barely exceeds what they paid the promoter.  Meanwhile, their money and the promoters are long gone.

Unsuspecting individuals are most likely to get caught up in scams and the IRS is warning all taxpayers, and those that help others prepare returns, to remain vigilant. If it sounds too good to be true, it probably is.

Anyone with questions about a tax credit or program should visit www.IRS.gov, call the IRS toll-free number at 800-829-1040 or visit a local IRS Taxpayer Assistance Center.

For questions about rebates, credit and benefits from other federal agencies contact the relevant agency directly for accurate information. 

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Page Last Reviewed or Updated: 19-Mar-2014

The Free State Filling

Free state filling 9. Free state filling   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. Free state filling Depletion unit. Free state filling Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Free state filling The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Free state filling There are two ways of figuring depletion: cost depletion and percentage depletion. Free state filling For mineral property, you generally must use the method that gives you the larger deduction. Free state filling For standing timber, you must use cost depletion. Free state filling 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. Free state filling More than one person can have an economic interest in the same mineral deposit or timber. Free state filling In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Free state filling You have an economic interest if both the following apply. Free state filling You have acquired by investment any interest in mineral deposits or standing timber. Free state filling 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. Free state filling 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. Free state filling A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Free state filling Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Free state filling Basis adjustment for depletion. Free state filling   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Free state filling Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Free state filling For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Free state filling You can treat two or more separate interests as one property or as separate properties. Free state filling See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Free state filling There are two ways of figuring depletion on mineral property. Free state filling Cost depletion. Free state filling Percentage depletion. Free state filling Generally, you must use the method that gives you the larger deduction. Free state filling However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Free state filling See Oil and Gas Wells , later. Free state filling Cost Depletion To figure cost depletion you must first determine the following. Free state filling The property's basis for depletion. Free state filling The total recoverable units of mineral in the property's natural deposit. Free state filling The number of units of mineral sold during the tax year. Free state filling Basis for depletion. Free state filling   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Free state filling Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Free state filling The residual value of land and improvements at the end of operations. Free state filling The cost or value of land acquired for purposes other than mineral production. Free state filling Adjusted basis. Free state filling   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. Free state filling Your adjusted basis can never be less than zero. Free state filling See Publication 551, Basis of Assets, for more information on adjusted basis. Free state filling Total recoverable units. Free state filling   The total recoverable units is the sum of the following. Free state filling The number of units of mineral remaining at the end of the year (including units recovered but not sold). Free state filling The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Free state filling   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. Free state filling You must include ores and minerals that are developed, in sight, blocked out, or assured. Free state filling You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Free state filling But see Elective safe harbor for owners of oil and gas property , later. Free state filling Number of units sold. Free state filling   You determine the number of units sold during the tax year based on your method of accounting. Free state filling Use the following table to make this determination. Free state filling    IF you  use . Free state filling . Free state filling . Free state filling THEN the units sold during the year are . Free state filling . Free state filling . Free state filling The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Free state filling An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Free state filling   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Free state filling Figuring the cost depletion deduction. Free state filling   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. Free state filling Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Free state filling Rate per unit. Free state filling 2 Multiply the rate per unit by units sold during the tax year. Free state filling Cost depletion deduction. Free state filling You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Free state filling Elective safe harbor for owners of oil and gas property. Free state filling   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Free state filling If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Free state filling For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Free state filling irs. Free state filling gov/pub/irs-irbs/irb04-10. Free state filling pdf. Free state filling   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. Free state filling The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Free state filling The election, if made, is effective for the tax year in which it is made and all later years. Free state filling It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Free state filling Once revoked, it cannot be re-elected for the next 5 years. Free state filling 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. Free state filling 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 . Free state filling Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Free state filling Gross income. Free state filling   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Free state filling Any rents or royalties you paid or incurred for the property. Free state filling 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. Free state filling A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Free state filling   Use the following fraction to figure the part of the bonus you must subtract. Free state filling No. Free state filling 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. Free state filling For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Free state filling Taxable income limit. Free state filling   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. Free state filling   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. Free state filling These deductible items include, but are not limited to, the following. Free state filling Operating expenses. Free state filling Certain selling expenses. Free state filling Administrative and financial overhead. Free state filling Depreciation. Free state filling Intangible drilling and development costs. Free state filling Exploration and development expenditures. Free state filling Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Free state filling Losses sustained. Free state filling   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Free state filling Do not deduct any net operating loss deduction from the gross income from the property. Free state filling Corporations do not deduct charitable contributions from the gross income from the property. Free state filling 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. Free state filling See section 1. Free state filling 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Free state filling Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Free state filling You are either an independent producer or a royalty owner. Free state filling The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Free state filling If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Free state filling 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. Free state filling 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. Free state filling However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Free state filling For information on figuring the deduction, see Figuring percentage depletion , later. Free state filling Refiners who cannot claim percentage depletion. Free state filling   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. Free state filling 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. Free state filling Related person. Free state filling   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. Free state filling For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Free state filling A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Free state filling 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. Free state filling The value of the outstanding stock of a corporation. Free state filling The interest in the profits or capital of a partnership. Free state filling The beneficial interests in an estate or trust. Free state filling 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. Free state filling Retailers who cannot claim percentage depletion. Free state filling   You cannot claim percentage depletion if both the following apply. Free state filling You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Free state filling Through a retail outlet operated by you or a related person. Free state filling 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. Free state filling 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. Free state filling 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. Free state filling   For the purpose of determining if this rule applies, do not count the following. Free state filling Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Free state filling Bulk sales of aviation fuels to the Department of Defense. Free state filling 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. Free state filling Related person. Free state filling   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Free state filling Sales through a related person. Free state filling   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. Free state filling   You are not considered to be selling through a related person who is a retailer if all the following apply. Free state filling You do not have a significant ownership interest in the retailer. Free state filling You sell your production to persons who are not related to either you or the retailer. Free state filling The retailer does not buy oil or natural gas from your customers or persons related to your customers. Free state filling 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. Free state filling 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. Free state filling Transferees who cannot claim percentage depletion. Free state filling   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. Free state filling For a definition of the term “transfer,” see section 1. Free state filling 613A-7(n) of the regulations. Free state filling For a definition of the term “interest in proven oil or gas property,” see section 1. Free state filling 613A-7(p) of the regulations. Free state filling Figuring percentage depletion. Free state filling   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. Free state filling 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%. Free state filling 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. Free state filling   In addition, there is a limit on the percentage depletion deduction. Free state filling See Taxable income limit , later. Free state filling Average daily production. Free state filling   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. Free state filling Partial interest. Free state filling   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. Free state filling   You have a partial interest in the production from a property if you have a net profits interest in the property. Free state filling 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. Free state filling To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Free state filling Then multiply the total production from the property by your percentage participation to figure your share of the production. Free state filling Example. Free state filling Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Free state filling During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Free state filling Javier had expenses of $90,000 attributable to the property. Free state filling The property generated a net profit of $110,000 ($200,000 − $90,000). Free state filling Pablo received income of $22,000 ($110,000 × . Free state filling 20) for his net profits interest. Free state filling 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). Free state filling Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Free state filling Depletable oil or natural gas quantity. Free state filling   Generally, your depletable oil quantity is 1,000 barrels. Free state filling 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. Free state filling 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. Free state filling Example. Free state filling You have both oil and natural gas production. Free state filling To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Free state filling Your depletable natural gas quantity is 2. Free state filling 16 million cubic feet of gas (360 × 6000). Free state filling You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Free state filling 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. Free state filling Also, see Notice 2012-50, available at www. Free state filling irs. Free state filling gov/irb/2012–31_IRB/index. Free state filling html. Free state filling Business entities and family members. Free state filling   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. Free state filling 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). Free state filling You and your spouse and minor children. Free state filling 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. Free state filling Controlled group of corporations. Free state filling   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Free state filling They share the depletable quantity. Free state filling 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%. Free state filling ” Gross income from the property. Free state filling   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. Free state filling 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. Free state filling   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. Free state filling   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Free state filling Average daily production exceeds depletable quantities. Free state filling   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. Free state filling Figure your average daily production of oil or natural gas for the year. Free state filling Figure your depletable oil or natural gas quantity for the year. Free state filling Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Free state filling 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). Free state filling This is your depletion allowance for that property for the year. Free state filling Taxable income limit. Free state filling   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. Free state filling 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. Free state filling For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Free state filling 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. Free state filling You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Free state filling Add it to your depletion allowance (before applying any limits) for the following year. Free state filling Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Free state filling (However, see Electing large partnerships must figure depletion allowance , later. Free state filling ) Each partner or shareholder must decide whether to use cost or percentage depletion. Free state filling 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. Free state filling Partner's or shareholder's adjusted basis. Free state filling   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. Free state filling The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Free state filling   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. Free state filling However, in some cases, it is figured according to the partner's interest in partnership income. Free state filling   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. Free state filling Recordkeeping. Free state filling 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. Free state filling The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Free state filling 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. Free state filling Reporting the deduction. Free state filling   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). Free state filling Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Free state filling The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Free state filling The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Free state filling Form 6198, At-Risk Limitations. Free state filling Form 8582, Passive Activity Loss Limitations. Free state filling Electing large partnerships must figure depletion allowance. Free state filling   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Free state filling 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. Free state filling Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Free state filling   An electing large partnership is one that meets both the following requirements. Free state filling The partnership had 100 or more partners in the preceding year. Free state filling The partnership chooses to be an electing large partnership. Free state filling Disqualified persons. Free state filling   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Free state filling Disqualified persons must figure it themselves, as explained earlier. Free state filling   All the following are disqualified persons. Free state filling Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Free state filling Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Free state filling 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. Free state filling Average daily production is discussed earlier. Free state filling 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. Free state filling Natural gas sold under a fixed contract. Free state filling   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Free state filling 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. Free state filling The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Free state filling 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. Free state filling Natural gas from geopressured brine. Free state filling   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Free state filling This is natural gas that is both the following. Free state filling Produced from a well you began to drill after September 1978 and before 1984. Free state filling Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Free state filling Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Free state filling Mines and other natural deposits. Free state filling   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. Free state filling   The following is a list of the percentage depletion rates for the more common minerals. Free state filling 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. Free state filling Corporate deduction for iron ore and coal. Free state filling   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). Free state filling Gross income from the property. Free state filling   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Free state filling Mining includes all the following. Free state filling Extracting ores or minerals from the ground. Free state filling Applying certain treatment processes described later. Free state filling 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. Free state filling Excise tax. Free state filling   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. Free state filling Extraction. Free state filling   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. Free state filling 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. Free state filling Treatment processes. Free state filling   The processes included as mining depend on the ore or mineral mined. Free state filling To qualify as mining, the treatment processes must be applied by the mine owner or operator. Free state filling For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Free state filling Transportation of more than 50 miles. Free state filling   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. Free state filling    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. Free state filling 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. Free state filling For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Free state filling irs. Free state filling gov/irb/2013-01_IRB/ar11. Free state filling html. Free state filling Disposal of coal or iron ore. Free state filling   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Free state filling You disposed of it after holding it for more than 1 year. Free state filling You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Free state filling Treat any gain on the disposition as a capital gain. Free state filling Disposal to related person. Free state filling   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Free state filling A related person (as listed in chapter 2 of Publication 544). Free state filling A person owned or controlled by the same interests that own or control you. Free state filling Geothermal deposits. Free state filling   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Free state filling A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Free state filling For percentage depletion purposes, a geothermal deposit is not considered a gas well. Free state filling   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Free state filling See Gross income from the property , earlier, under Oil and Gas Wells. Free state filling Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Free state filling Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Free state filling A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Free state filling Bonuses and advanced royalties. Free state filling   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. Free state filling 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. Free state filling Figuring cost depletion. Free state filling   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. Free state filling 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. Free state filling Figuring percentage depletion. Free state filling   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 . Free state filling 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. Free state filling 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. Free state filling Ending the lease. Free state filling   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. Free state filling Do this for the year the lease ends or is abandoned. Free state filling Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Free state filling   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. Free state filling Include this amount in income for the year the lease ends. Free state filling Increase your adjusted basis in the property by the amount you include in income. Free state filling Delay rentals. Free state filling   These are payments for deferring development of the property. Free state filling Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Free state filling These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Free state filling Timber You can figure timber depletion only by the cost method. Free state filling Percentage depletion does not apply to timber. Free state filling Base your depletion on your cost or other basis in the timber. Free state filling Your cost does not include the cost of land or any amounts recoverable through depreciation. Free state filling Depletion takes place when you cut standing timber. Free state filling You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Free state filling Figuring cost depletion. Free state filling   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Free state filling Timber units. Free state filling   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Free state filling You measure the timber using board feet, log scale, cords, or other units. Free state filling If you later determine that you have more or less units of timber, you must adjust the original estimate. Free state filling   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Free state filling Depletion unit. Free state filling   You figure your depletion unit each year by taking the following steps. Free state filling Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Free state filling Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Free state filling Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Free state filling 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. Free state filling Divide the result of (2) by the result of (3). Free state filling This is your depletion unit. Free state filling Example. Free state filling You bought a timber tract for $160,000 and the land was worth as much as the timber. Free state filling Your basis for the timber is $80,000. Free state filling 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). Free state filling If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Free state filling When to claim depletion. Free state filling   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). Free state filling 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. Free state filling The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Free state filling Example. Free state filling The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Free state filling You would deduct $20,000 of the $40,000 depletion that year. Free state filling You would add the remaining $20,000 depletion to your closing inventory of timber products. Free state filling Electing to treat the cutting of timber as a sale or exchange. Free state filling   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Free state filling You must make the election on your income tax return for the tax year to which it applies. Free state filling 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. Free state filling You generally report the gain as long-term capital gain. Free state filling 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. Free state filling For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Free state filling   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Free state filling The prior election (and revocation) is disregarded for purposes of making a subsequent election. Free state filling See Form T (Timber), Forest Activities Schedule, for more information. Free state filling Form T. Free state filling   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. Free state filling Prev  Up  Next   Home   More Online Publications