Question:  What is the proper netting procedure for separately stated depletion deduction given basis limitations?

Scenario: Partnership K-1 (1065)

Beginning Basis: 0

Ordinary income: 6,730

Depletion:  2,830

Current Year Distribution: 6,000

Prior year suspended losses: 12,000

Solution:

A)  The basis limitation is calculated by first reducing ordinary income by the current year distribution.  (i.e. 6,730-6,000).  The remaining 730 basis can then be used to support pro-rated deductions from suspended losses and depletion.

OR

B)  The basis limitation is calculated by first reducing ordinary income by depletion (i.e. 6,730 - 2,830).  The remaining 3,900 basis is then reduced to 0 for the 6,000 distribution and excess distribution of 2,100 is treated as capital gain.

Thanks for any input on this matter.