Tentative percentage depletion

[Questionguy101]

Taxpayer invests in oil/gas intangible drilling program. He receives a Form K-1 every year as a limited partner. Attached to the Form K-1, there is a 'Partner's Oil/Gas Summary Schedule' in which there is an amount for the 'tentative percentage depletion'.

Has the 'tentative percentage depletion' been included in the Schedule K-1? If not, how and where to claim and deduct this amount?

Thank you in advance for your opinions.

[Bees Knees]

TTB, page 7-5, Depletion-Partners and S Corporation Shareholders...

Explains that the depletion deduction is NOT included on the K-1 because the options and calculations need to be determined on the individual partner's or shareholders return.

TTB, page 9-21 explains how to calculation the various ways of taking a deplection deduction.

[Joe Btfsplk]

Depletion

Some of the Oil Royalty trusts I've invested in provide a complicated set of figures and factors to calculate the depletion. It's nothing as simple as just taking 15% of gross income like you could with an ordinary royalty interest.

In the good old days all production was subject to percentage depletion. Now a lot of production is not able to use that type depletion.

[Questionguy101]

TTB, page 7-5, Depletion-Partners and S Corporation Shareholders...

Explains that the depletion deduction is NOT included on the K-1 because the options and calculations need to be determined on the individual partner's or shareholders return.

TTB, page 9-21 explains how to calculation the various ways of taking a deplection deduction.

After figuring out the depletion amount, does the taxpayer make a Schedule E for that investment and claim it as a depreciation expense?

[Bees Knees]

After figuring out the depletion amount, does the taxpayer make a Schedule E for that investment and claim it as a depreciation expense?

No.

The instructions for Schedule E, line 28 says the following:

Line 28
For nonpassive income or loss (and passive
income or losses for which you are not
filing Form 8582), enter in the applicable
column of line 28 your current year ordinary
income or loss from the partnership or
S corporation. Report each related item
required to be reported on Schedule E (in-
cluding items of income or loss stated
separately on Schedule K-1) in the applica-
ble column of a separate line following the
line on which you reported the current year
ordinary income or loss. Also enter a
description of the related item (for exam-
ple, depletion) in column (a) of the same
line.

[Questionguy101]

No.

The instructions for Schedule E, line 28 says the following:

Line 28
For nonpassive income or loss (and passive
income or losses for which you are not
filing Form 8582), enter in the applicable
column of line 28 your current year ordinary
income or loss from the partnership or
S corporation. Report each related item
required to be reported on Schedule E (in-
cluding items of income or loss stated
separately on Schedule K-1) in the applica-
ble column of a separate line following the
line on which you reported the current year
ordinary income or loss. Also enter a
description of the related item (for exam-
ple, depletion) in column (a) of the same
line.

So, for the depletion expense of a oil/gas drilling activity (passive activity as a limited partner), the depletion amount should be entered on column (f) 'passive loss allowed' on "a separate line following the line on which you reported the current year ordinary income or loss". Have I read it correctly? Please correct me if I am wrong.