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Customer who owns a gravel pit operation

bsredlight30
Level 1

Hello - was wondering if i could get some thoughts on the following I cannot seem to find anything specific in the tax guidance:

 

Customer runs a gravel pit operation on Sch C we use the % depletion based on gross revenues.  Client cleared land to extend size of gravel pit to the tune of $30k.  As we are using % depletion the basis of pit doesn't have a bearing on depletion, can we take the $32k as an expense versus capitalizing it?  I know land clearing usually adds to the basis of say a building but in my eyes this seems like something to just expense.  I have seen some guidance but it seems to apply to farming. 

Any thoughts are appreciated.

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3 Replies 3
IRonMaN
Level 15

Based on that info, I would have to vote for capitalization of the costs.

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Terry53029
Level 11
Level 11

I don't have a reference, but I thank the IRS call's that "stripping", and like @IRonMaN  said he votes on capitalizing that cost. I cast my vote with him

bsredlight30
Level 1

Thanks for the thoughts - i will look into stripping costs.  as we are depleting using a % of revenue i just dont see how capitalizing these costs ever get depreciated out?

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