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Partnership basis and depletion

Technical topics regarding tax preparation.
#1
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Percentage depletion is not limited by the taxpayer's basis in the property subject to depletion. But in the case of a partner's 1040 is it limited to the taxpayer's basis in the partnership? I do not want it to be, but I think it probably is. :(

This is one of those things that I should probably know but I do not feel sure of myself. Would any kind souls be willing to set my mind at rest? :? Ideally with an authoritative citation that I could cling to for comfort :ugeek:
Because on T.A. ten was the most you were allowed
 

#2
Nilodop  
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Good news. See reg. 1.613A-3(e).
 

#3
Chay  
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Isn't section 705(a)(1)(c) more to the point?
 

#4
Nilodop  
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I'd say its at best of equal value to the point, that point being only whether the % depletion is limited to basis in the partnership interest. It isn't because it's figured at the partner level and percentage depletion is not limited by basis but by other stuff such as gross and net income, etc.

See also pages 5 and 6 of this article. https://cpschumannco.com/assets/pdf-fil ... covery.pdf
 

#5
Chay  
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Nilodop wrote:I'd say its at best of equal value to the point, that point being only whether the % depletion is limited to basis in the partnership interest. It isn't because it's figured at the partner level

The mere fact that a deduction is determined at the partner level isn't determinative because basis in a partnership interest is itself a partner-level item. With rare exception, one needs basis in an expenditure before being able to claim a deduction.

Sections 705(a)(1)(c) and 705(a)(3) govern the interaction between depletion and a partner's basis. The other limitations merely serve to establish the amount of depletion.
 

#6
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In the case of an O&G property, see Sec 705(a)(3):

decreased (but not below zero) by the amount of the partner's deduction for depletion for any partnership oil and gas property to the extent such deduction does not exceed the proportionate share of the adjusted basis of such property allocated to such partner under section 613A(c)(7)(D) .

So, if you have a partner with $0 outside basis and a $10k O&G depletion comes through on the K1, $7k of which is excess of the property’s inside basis, the $7k is allowed in full. The $3k gets suspended under the basis rules.
 

#7
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Many thank yous, this was what I needed.
Because on T.A. ten was the most you were allowed
 


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