How to Calculate for Depletion Expense on a Schedule E

Schedule E is part of Form 1040.

Depletion is similar to depreciation, where you can deduct the cost of an asset over the life of the asset. Depletion, unlike depreciation, looks at raw materials such as minerals. To calculate depletion on Schedule E, you need to know your property's basis, the number of recoverable units on your property and the number of units sold during the year. Once you calculate depletion, you can deduct the amount from your income on Form 1040 (Schedule E).

Instructions

1. Find your property's basis, the number of recoverable units on your property and the number of units sold during the year. The basis is the original cost of property plus capital improvements minus depletion already taken or any casualty loss. Then subtract any recoverable depreciation deductions, deferred expenses, any other deductions, the residual land value and any cost of land not used for minerals.

2. Divide your basis by the number of recoverable units of the raw material to calculate the rate per unit.

3. Multiply the number of units you sold during the year by the rate per year to find your depletion deduction.

References

• IRS: Publication 535
• IRS: Schedule E Instructions