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 57(e)(1), 60 months
A2	Section 291(b), cost incurred before January 1, 1987, 36 months (Corporations only)
A3	Section 291(b), cost incurred after December 31, 1986, 60 months (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 in the Depletion worksheet. If "Beginning Reserve - UP Depreciation" is not entered, the "Beginning Reserve - Cost Depletion" entry on the Depletion worksheet is used.

If either production or beginning reserve is blank, but an entry is present in the "Cost Depletion Rate or Amount" field, 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 methods "A1," "A2," and "A3" to capitalize and amortize intangible drilling costs.

Note: Life and IRC section number entries are not required for assets with methods of "A1," "A2," and "A3."

Assets coded "A1" are amortized over 60 months, beginning with the month production of the well begins. (Enter the date production of the well began as "Date in Service" on in this section.)

Assets coded "A2" are amortized over 36 months, beginning with the month the expenses are paid or incurred.

Assets coded "A3" are amortized over 60 months, beginning with the month the expenses are paid or incurred.

Intangible drilling costs with codes of "A1," "A2" or "A3" carry to Form 4562, Part VI.