1099 for Well Income

[pmedders]

Have a client that invests in gas wells and received a 1099 for income from that well this year. Just want to confirm:

Example - He invested $10,000 in 2005 for drilling and completion of well in 2005. He received a 1099 showing misc. income of $14,534 and deductible expenses of $8500. He also has documentation showing tangible expenses of $883 and intangible expenses of $8,351.

Income of $14534 goes on schedule C
Expenses of 8,500 - schedule C expense
Intangible expense of $8,351 - have choice to expense or amortize
Tangible expense - depreciate over 5 years.

Do I depreciate or amortize the client's invested $10,000 over a set time or does the $10,000 become his basis for calculating depletion deductions. If client using percentage depletion, I noted that the amount of the deduction allowble under percentage depletion is not limited by the basis of the property.

Does it sound like I have it right???

[OldJack]

Do I depreciate or amortize the client's invested $10,000 over a set time or does the $10,000 become his basis for calculating depletion deductions. If client using percentage depletion, I noted that the amount of the deduction allowble under percentage depletion is not limited by the basis of the property.

If you invest in your home or the stock market you don't write-off or depreciate the purchase. It become your cost of the presonal residence or your cost of share of stock, it is your cost basis for later sale. Your clients $10,000 investment is the same thing as stock it can't be written off unless the business closes or goes bankrupt without returning his investment. Your other items sound correct.