Wes acquired a mineral interest during the year for, Ask an Expert

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Wes acquired a mineral interest during the year for $10,000,000. A geological survey estimated that 250,000 tons of the mineral remained in the deposit. During the year, 80,000 tons were mined, and 45,000 tons were sold for $12,000,000. Other expenses amounted to $5,000,000. Assume the mineral depletion rate is 22%.

a. What is the taxable income before the deduction for depletion?

b. Under cost depletion, what is the amount of the deduction?

c. Under percentage depletion, what is the amount of the deduction?

d. Wes's lowest taxable income after the depletion deduction is?

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