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Surviving spouse's depletion on community property for year of deceased spouse's death.

Under Sec. 1014(b)(6), the basis of a surviving spouse's 50% share of community property generally is stepped up or down to its fair market value at the deceased spouse's date of death.

Rev. Rul. 92-37 explained how to calculate a surviving spouse's oil and gas cost depletion for her 50% share of community oil and gas property for the year of the deceased spouse's death. This ruling concluded that depletion on the survivor's share of the property for the whole year, including the portion preceding the decedent's death, should be based on the estate tax value of the entire property pursuant to Sec. 1014.

The ruling provided an example of a married couple, D and S, who lived in a community property state. The community property included oil and gas working interests and royalty interests, which did not qualify for percentage depletion. D died Mar. 18, 1989. A joint return was filed for 1989, covering D's shor tax year ending Mar. 18, 1989 and S's full tax year ending Dec. 31, 1989.

This ruling pointed out that Regs. Sec. 1.611-2(a)(1) requires depletion for a tax year to be computed after the property's adjusted basis is determined. Thus, cost depletion is computed only once for a tax. An oil and gas property's adjusted basis includes all required basis adjustments. Therefore, the basis for computing S's depletion for 1989 was her basis in the property at Dec. 31, 1989.

Rev. Rul. 92-37 did not address the short year computation of depletion on the decedent's share of the property included in his estate. However, since Sec. 1014 steps the basis of property up or down to its estate tax value only with respect to property in the hands of a person who acquired it from a decedent, the decedent's basis for this property would not change. Hence, cost depletion on the decedent's share of the community property for his short tax year would be determined by reference to the property's predeath basis.
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Article Details
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Author:Harrell, Madlyn M.
Publication:The Tax Adviser
Article Type:Brief Article
Date:May 1, 1993
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