Question

Lindsey purchased a uranium interest for 10,000,000 on January 3, when recoverable reserves were estimated at 200,000 units. A total of 10,000 units were extracted in 2018 and 7,000 units were sold in 2018. Gross income from the property was 2,800,000 ad taxable income without the allowance for depletion was 1,000,000. Determine her depletion deduction for 2018. the percentage depletion rate is 22%

Answer 1

Given,

Lindsey purchased a uranium interest for =10,000,000

Estimated recoverable reserves = 200,000 units

Total units produced = 10000 units

Total units Sold = 7000units

Gross income from property was 2800000

taxable income Without alloance for depletion was 1000000

Therefore, Her depletion Deduction for 2018 will be

we know deduction is always given on the gross income **

so the depletion deduction will be=

Gross income/total units * units sold= 2,800,000/200,000*7000= 98,000

%wise depletion would be Lower of the below:

50% of taxable income without allowancefor depletion & 22% given % depletion rate of the gross income

i.e

50% of 1000000 And 22% of 2800000

Lower of

a) 500000

b) 616000

therefore A = 500000