K1 for Trust

[pmedders]

Have a client that has a K-1 for a trust and the K-1 shows $2,174 for depletion on line 5c of K-1. Backup shows the $2,174 is non-passive depletion and shows "total percentage depletion (greater than cost) (subject to 65% limit). I am not too knowledgeable with the oil/gas wells. I use the Lacerte program and see where I should input the $2,174 in the "percentage depletion" section. But do I need to be concerned with the "subject to 65% limit" and "greater than cost" info?? Or is it easier than I am making it - is all I need to do is input the $2,174 into the percentage depletion section????

Appreciate your input!!!

[pmedders]

Depletion - Oil & Gas Wells

Does anyone have a good website to get detailed info on how depletion is handled?

[Bees Knees]

TTB, page 7-5 and 9-20 has some info on depletion. The reason depletion is stated separetly on the K-1 is that the partner (or trust beneficiary) decides wether to use cost or percentage depletion. Also, deductions are generally limited to basis, which can only be determined at the partner level.

[pmedders]

Bee Knees, help!!!!

Being K-1 shows "(greater than cost)" do I assume the $2,174 depletion deduction is more than basis? I know the client will have no idea what basis is. Also, K-1 shows "(subject to 65% limit)" - does that mean that only 65% of the $2174 is a depletion deduction or does it mean that the $2,174 already reflects 65%??

[Bees Knees]

The 65% limit has to do with limiting the depletion deduction to 65% of the taxpayer's income from all sources [(IRC section 613A(d)(1)].

As far as basis is concerned, if you take cost depletion, the deductions cannot exceed basis. But if you take percentage depletion, the depletion deduction continues even if you have zero basis as long as there is still gross income from the property.

[pmedders]

So, would

the safest way to go percentage depletion being the client has no idea of basis??

[Bees Knees]

the safest way to go percentage depletion being the client has no idea of basis??

That would be what I would do. Just deduct the amount the K-1 says, as long as it doesn't exceed 65% of the taxpayer's total income from all sources.