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74TH C ONGRESS . SESS. II. CH. 690 . JU NE 22, 1936 . was held by the transferor, donor, or grantor, or during which the other property was held by the person for whom the basis is to be determined . A similar rule shall be applied in the case of a series of substituted bases . Depreciation and de- SEC. 114 . BASIS FOR DEPRECIAT ION AND DEPL ETION . pleti on . Basis for.
(a) BASIS FOR DEPRECIATION .-The basis upon which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any Ante, p. 1685. property shall be the adjusted basis provided in section 113 (b) for the purpose of determining the gain upon the sale or other disposi- tion of such property . (b) BASIS FOR DEPLETION .- Gen eral rule . (1) GENERAL RULE .-The basis upon which depletion is to be allowed in respect of any property shall be the adjusted basis provided in section 113 (b) for the purpose of determining the gain upon the s ale or ot her dis o sition of such pro perty, ex cept as prov ided in para grap hs (2), (3), and (4) of this subsection . Discovery value in
(2) DISCOVERY VALUE IN CASE OF MINES .-In the case of mines case of mines . (other than metal, coal, or sulphur mines) discovered by the tax- payer after February 28, 1 913, the basis for depletion shall be the fair market value of the property at the date of discovery or within thirty days thereafter, if such mines were not acquired as the result of purchase of a proven tract or lease, and if the fair market value of the property is materially disproportionate Ma ximum allo w- to the cost . The depletion allowance under section 23 (m) based Ante, p. 1660 . on discovery value provided in this paragraph shall not exceed 50 per centum of the net income of the taxpayer (computed without allowance for depletion) from the property upon which the dis- covery was made, except that in no case shall the depletion allow- ance under section 23 (in) be less than it would be if computed Minerals included . wi thou t re fere nce to d isco very val ue . Disc overies s hall inclu de minerals in commercial quantities contained within a vein or deposit discovered in an existing mine or mining tract by the taxpayer after February 28, 1913, if the vein or deposit thus dis- covered was not merely the uninterrupted extension of a continu- ing commercial vein or deposit already known to exist, and if the discovered minerals are of sufficient value and quantity that they could be separately mined and marketed at a profit. Percentage depletion
(3) PERCENTAGE DEPLETION FOR OIL AND GAS WELLS .-In the case for oil and gas wells. of oil and gas wells the allowance for depletion under section 23 (m) shall be 271/2 per centum of the gross income from the p rope rty during the taxable year, excluding from such gross income an amount equal to any rents or royalties paid or incurred Maximum allow- ante .
by the taxpayer in respect of the property . Such allowance shall not exceed 50 per centum of the net income of the taxpayer (com- p uted with out allow ance for d epletion) from the property , except that in no case shall the depletion allowance under section 23 (m) be less than it would be if computed without reference to this paragraph . Percentage depletion far coal and metal
(4) PERCENTAGE DEPLETION FOR COAL AND METAL MINES AND mines and sulphur . SULPHUR .-The allowance for depletion under section 23 (m) sha ll be, in the case of coal mines, 5 per centum, in the case of metal mines, 15 per centum, and, in the case of sulphur mines or deposits, 23 per centum, of the gross income from the property during the taxable year, excluding from such gross income an amount equal to any rents or royaltie s paid o r incurr ed by th e taxpay er in re spect Maxi mum allow -
of the once.
property. Such allowance shall not exceed 50 per centum of the net income of the taxpayer (computed without allowance Election by taxpayer as to eomputation-
for depletion) from the property . A taxpayer making his first return under this title in respect of a property shall state whether
