115-97, issued on December 22, 2017, amended IRC Section 613A to clarify that the 65% of taxable income limitation should be computed without regard to qualified business income deduction. The 65% limitation (based on the taxpayer’s income from all sources) applies if percentage depletion is used. Exception: Electing large partnerships calculate depletion at the partnership level. If Oklahoma options are exercised, the Federal depletion not used due to the 65% limitation may not be carried over for Oklahoma purposes." It says total percentage depletion is $3,515 (subject to 65% taxable income limitation). Percentage depletion also has other limitations: A taxpayer’s total percentage depletion deduction for the year from all oil and gas properties cannot exceed 65 percent of taxable income, computed without deducting percentage depletion, the domestic production activities deduction, NOL carrybacks and capital loss carrybacks (if a corporation). What is this 65% limit? Cost depletion cannot exceed the property's basis, while the use of percentage depletion is limited to the revenue from production of 1,000 barrels a day. Percentage depletion method . This proves This method uses a specified percentage (15% for natural gas) of the landowner's gross income from the property, limited to the lesser of 15% of the landowner's taxable income from the property or 65% of the landowner's taxable income from all sources. Are you asking about the 15% percentage O&G depletion limited by 65% of taxable income? Additionally, your ability to take the deduction in the current year may be restricted if you have a net passive activity loss from Legacy for the year. Oklahoma Net Operating Loss Enter carryover(s) from previous years. Depletion is generally allowable in the year the oil or gas is produced under IRC 613A. Then apply the 65% limit on the 2017 depletion. Any portion of percentage depletion deduction disallowed under the 65% limit may be carried over. However, the Supreme Court decided in the consolidated cases of Fred L. Engle and Phillip D. Farmar dated January 10, 1984, that percentage depletion is allowable on oil and gas lease bonuses and advance royalty income. The taxpayer’s 65 percent taxable income limitation - the taxpayer’s taxable income is computed without regard to any depletion on production, any IRC §199 deduction, net operating loss carryback to the taxable year or capital loss carryback to the taxable year. Rusty computes his percentage depletion deduction by multiplying his $50,000 gross income from the oil/gas property by 15%, which is $7,500. Also, statement says that all of the depletion … If you have a carryover, for example of $500 in depletion you couldn't use in 2016 due to the taxable income limit, simply calculate the 15% 2017 depletion before limits and add the $500 carry over. Any excess over the above limitation is carried over to the next year. Any depletion deduction allowable is the amount so computed minus the Federal depletion claimed. Pub 535: P.L. Limit the resulting total percentage depletion from all properties to 65% of the taxable income (without any percentage depletion deduction) for the entire return, and reduce the percentage depletion of each property by its pro rata share of any excess. Geothermal Property and Other Mineral Property Certain mines, wells, geothermal deposits, and other natural deposits qualify for percentage depletion. One limitation is that the taxpayer's percentage depletion deduction may not exceed 65% of his/her taxable income. Exempt Tribal Income

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