CCH Axcess Tax

Depreciation and Amortization Methods for Depletion Property

There are several depreciation and amortization methods intended specifically for depletion depreciation computations:

Code	Method or IRC Section
UP	Units of Production
A1	Section 59(e), 120 months amortization, beginning with the month production of the well begins. (Enter the date production of the well began as the "Date in Service.")
A2	Section 291(b), cost incurred before January 1, 1987, 36 months amortization (Corporations only)
A3	Section 291(b), cost incurred after December 31, 1986, 60 months amortization (Corporations only)
A	Section 59(e) Intangible Drilling Costs - (For 5 years full month convention, enter a "Life" of 60 months with the "Date in Service" at the start of the month that the cost was paid or incurred.)
A	Section 59(e) Mining Development and Exploration Expenditures - (For 10 year full year convention, enter a "Life" of 120 months with the "Date in Service" at the start of the year that the cost was paid or incurred.)

If the method is "UP," depreciation is computed based on the units of production depreciation method. The "UP" rate is computed by dividing production (for cost depletion purposes) by the entry for "Beginning Reserve - UP Depreciation" entered on the Rent and Royalty worksheet, Depletion section. If "Beginning Reserve - UP Depreciation" is not entered, the "Beginning Reserve - Cost Depletion" entry on the Rent and Royalty worksheet, Depletion section is used.

If either production or beginning reserve is blank, but an entry is present in the "Cost Depletion Rate or Amount" field on the Rent and Royalty worksheet, Depletion section, the effective cost depletion rate is used to compute units of production depreciation. The remaining basis of the property is divided by allowable cost depletion to compute the effective cost depletion rate. If the federal and state basis differ, the federal basis is used.

Note: Next year's depreciation is not computed for depreciation method "UP."

Use method "A1" to capitalize and amortize intangible drilling costs.

Note: Life and IRC section number entries are not required for assets when a method of "A1" is used.

Intangible drilling costs with a code of "A1" will carry to Form 4562, Part VI.

In the "IDC Code" field, enter a "P" to deduct amortization on a prior year acquisition or a "C" to add back the unamortized portion for a current year acquisition.