You purchase mineral rights for $80,000 but you lease the rights to another company keeping one-eighth royalty interest. Reserves at the end of the year are 20,000 barrels and production and sales for the year is 30,000 barrels(which apply to you). You receive royaltied for the year of $40,000. Calculate maximum depletion deduction for the year. Consider both cost and percentage depletion deductions under tax laws, if any.

Answer rating: 100% (QA)

To calculate the maximum depletion deduction for the year we need to determine the adjusted basis of the mineral rights and the depletion allowance Ad... View the full answer