How to calculate depletion for working interest on 1040

[kgalland]

I use Proseries which is fine for simple returns but doesn't work for complex taxes. Is there a work around to calculate depletion expense for Sch C working interest Oil & Gas? I don't see anywhere to show the carryforward to next year based on net income limitations.

[Terry53029]

this is the way you calculate if you use Cost depletion. (Adjusted basis of property / Total recoverable units) x Units sold during the tax year = Cost depletion deduction.

You can also use Percentage depletion. This method is calculated by applying a fixed percentage to the gross income from the property. The rate varies depending on the type of resource, which you can look up

The advantage of using percent is it may exceed your cost basis.

[sjrcpa]

If the software doesn't track the carryover, track it yourself outside the software.

[kgalland]

The problem is Proseries only allows manual depletion entries and since there is no program entry, I can't figure out how to carryforward depletion that is limited based on net income. It also doesn't show on the Federal carryover worksheet so I guess it would need a manual note added to Line 12 of Sch C

[BobKamman]

@Terry53029 My understanding is that for working interests, you must use the higher of cost depletion or percentage depletion.  And, if you want to do accounting for owners of working interests, you need to keep workpapers to show your calculations and carryovers, per property.  There is software for that, but they don't quote the price online.  Which leads me to believe that it's expensive.  

[Terry53029]

@BobKamman   Yes Bob I agree for oil, and gas the IRS requires you to use the method that gives you the highest deduction. Didn't think anyone would not compute both ways, and use the higher deduction for client

[BobKamman]

@Terry53029 Someone might choose to use percentage depletion, even if less, to avoid reducing basis in a year where tax is zero anyway because of other items on the return.  But they can't.