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Instruction Booklet For 1040x

File Free Federal And State Taxes OnlineEz 1040Free 1040ez OnlineFree Tax FilingH&r Block Tax OnlineAmend My 2012 Tax ReturnFiling Back Taxes Online FreeBlank Printable 1040ez FormNj 1040x 20111040a 2012 InstructionsFill Out 1040x OnlineWww Handrblock ComFree Tax AmendmentHow Do I File My 2010 Tax ReturnBlank Printable 1040ez FormFree Tax Calculator 20111040ez BookletMilitary H & R BlockHow To File 2011 Tax Return In 2013Irs Gov Free File Federal And State TaxesTurbotax Deluxe Federal Efile State 2009Free Tax Filing 20112011 1040a Tax FormsState Tax File2013 Tax Form 1040ezFree State Income TaxIrs InstructionsFile An Amended Tax Return Online FreeSample 1040ezFile Free Tax Extension Online1040nr Ez E File2010 Taxes Cheap 1099g Form W 22014 1040 Ez FormH&rblock ComFederal Tax Return 1040ezTaxslayer 2011 Tax ReturnState Income TaxMyfreetaxes Com KingcountyTax For Self Employed1040ez.com

Instruction Booklet For 1040x

Instruction booklet for 1040x Index A Assistance (see Tax help) F Free tax services, How To Get Tax Help H Help (see Tax help) M More information (see Tax help) P Publications (see Tax help) T Tax help, How To Get Tax Help Taxpayer Advocate, Taxpayer Advocate Service. Instruction booklet for 1040x TTY/TDD information, How To Get Tax Help Prev  Up     Home   More Online Publications
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Prevent and Report Identity Theft

Learn how to prevent and report identity theft.


Tips for Preventing Identity Theft

Identity thieves steal your personal information to commit fraud. They can damage your credit status and cost you time and money restoring your good name. To reduce your risk of becoming a victim, follow the tips below:

  • Don't carry your Social Security card in your wallet or write it on your checks. Only give out your SSN when absolutely necessary.
  • Protect your PIN. Never write a PIN on a credit/debit card or on a slip of paper kept in your wallet.
  • Watch out for "shoulder surfers". Use your free hand to shield the keypad when using pay phones and ATMs.
  • Collect mail promptly. Ask the post office to put your mail on hold when you are away from home for more than a day or two.
  • Pay attention to your billing cycles. If bills or financial statements are late, contact the sender.
  • Keep your receipts. Ask for carbons and incorrect charge slips as well. Promptly compare receipts with account statements. Watch for unauthorized transactions.
  • Tear up or shred unwanted receipts, credit offers, account statements, expired cards, etc., to prevent dumpster divers getting your personal information.
  • Store personal information in a safe place at home and at work. Don't leave it lying around.
  • Don't respond to unsolicited requests for personal information in the mail, over the phone or online.
  • Install firewalls and virus-detection software on your home computer.
  • Check your credit report once a year. Check it more frequently if you suspect someone has gotten access to your account information.

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How to Report Identity Theft

Your wallet contains some of your most important personal items, from hard-earned money to credit cards and driver’s license. For an identity thief, your wallet offers a treasure trove of personal information. If you suspect or become a victim of identity theft, follow these steps:

  • Report it to your financial institution. Call the phone number on your account statement or on the back of your credit or debit card.
  • Report the fraud to your local police immediately. Keep a copy of the police report, which will make it easier to prove your case to creditors and retailers.
  • Contact the credit-reporting bureaus and ask them to flag your account with a fraud alert, which asks merchants not to grant new credit without your approval.

If your identity has been stolen, you can use an ID Theft affidavit to report the theft to most of the parties involved. All three credit bureaus and many major creditors have agreed to accept the affidavit. You can download the ID theft affidavit or request a copy by calling toll-free 1-877-ID-THEFT (438-4338). You can also file a complaint with the Federal Trade Commission.

Use this helpful infographic (PDF) to help you remember the steps to take if your wallet or identity have been stolen.

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The Instruction Booklet For 1040x

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