Changes

==Calculating allowable depletion==

==Calculating allowable depletion==

Determining the allowable depletion deduction is probably the most difficult calculation. [[:file:about-taxes_fig2.png|Figure 2]] is intended to help with this calculation. As shown in Figure 2, allowable depletion is the greater of cost depletion or percentage depletion. ''Cost depletion'' is calculated by taking the remaining depletable basis (unrecovered G & G costs and lease bonus) and multiplying by the fraction of the remaining reserves produced during the year (production during the year divided by reserves at the beginning of the year). All producers are eligible for cost depletion. Independent producers and royalty owners are also eligible for percentage depletion. ''Percentage depletion'' is the lesser of 15% of gross income or 100% of taxable income before depletion from the property. Prior to January 1, 1991, the Taxable Income limitation was 50% for each property. This change is the result of the Revenue Reconciliation Act of 1990. This recent change also demonstrates the “dynamics” of tax rules and the importance of seeking professional advice in this area. An example of another complication in the tax law is the 65% of taxable income limitation from all sources (not just limited to the producing property). The 65% taxable income limit from all sources is difficult to apply to single project economics and is ignored in the example problems presented.

Determining the allowable depletion deduction is probably the most difficult calculation. [[:file:about-taxes_fig2.png|Figure 2]] is intended to help with this calculation. As shown in Figure 2, allowable depletion is the greater of cost depletion or percentage depletion. ''Cost depletion'' is calculated by taking the remaining depletable basis (unrecovered G & G costs and lease bonus) and multiplying by the fraction of the remaining reserves produced during the year (production during the year divided by reserves at the beginning of the year). All producers are eligible for cost depletion. Independent producers and royalty owners are also eligible for percentage depletion. ''Percentage depletion'' is the lesser of 15% of gross income or 100% of taxable income before depletion from the property. Prior to January 1, 1991, the Taxable Income limitation was 50% for each property. This change is the result of the Revenue Reconciliation Act of 1990. This recent change also demonstrates the “dynamics” of tax rules and the importance of seeking professional advice in this area. An example of another complication in the tax law is the 65% of taxable income limitation from all sources (not just limited to the producing property). The 65% taxable income limit from all sources is difficult to apply to single project [[economics]] and is ignored in the example problems presented.

==References==

==References==