Sale of Mineral Rights

[Andy2015]

I inherited mineral rights that I sold in 2019. So, on Form 4797:

1) On Line 20, I entered the sale price that I received

2) On Line 21 I entered the cost basis for my date of acquisition (the date of death of the person I inherited from)

3) On Line 22 I entered the total depletion amount I took on royalties during the time that I owned the mineral rights, but Line 22 is GREATER than Line 21 so TurboTax has colored the box for that line in red indicating a problem with the number on Line 22 being larger than the number on Line 21.

4) Line 23 shows a negative amount because Line 22 is greater than Line 21. This should be correct because of the need for recapture of excess depletion taken. 

5) Line 24 is larger than Line 20 and that should also be correct because of the need for recapture of excess depletion taken.

So, my question is: Why is TurboTax indicating a problem with the number I have entered on Line 22 of Form 4797? Am I entering the sale data in an incorrect way?

[RobertG]

TurboTax is indicating a problem because depletion cannot exceed basis.  

Percentage depletion has one major advantage over cost depletion: it is possible to claim aggregate depletion deductions that exceed your basis. That means you get a deduction even after you have expensed the entire basis.

When your percentage depletion exceeds your basis, a basis increase is allowed.

So, your basis is increased to match the amount of allowable depletion.

[Andy2015]

I did use percentage depletion to calculate taxes on past royalty payments. So then, I just raise my cost basis number up to exactly match my allowable depletion amount (which is the total of all of the depletion I have taken on royalty payments over the years), so that the net effect on the sales price is zero (Line 20 will equal Line 24; Line 21 will equal Line 22; Line 23 will equal Zero)? Did I understand your answer correctly?

And thanks for your previous quick response!

[RobertG]

Yes, that is correct.