The answers are shown below.
Starting with Question 2.
- Correct? Yes you are correct. Your replacement apportionment appears reasonable and correct as well.
- I populated $54,000 in the Cost field when it should have been $45,000, correct? No, TurboTax will automatically reduce the cost by the land, enter $54,000
- I populated $9,000 in Cost of Land field, which was right I believe, correct? Yes, this is correct.
- Depreciation will be calculated on $45,000 with the entries above.
Question 1. The depletion expense is allowed because the extraction of oil and gas actually reduces the land value when before extraction the land has a much greater value. Percentage depletion cannot exceed the cost basis below zero. This must be tracked manually and retained with your tax file.
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