1448                             LAWS OF MARYLAND                       [CH. 877

crement from the first principal cash available or, if none is avail-
able, when realized by sale, redemption, or other disposition. When-
ever unrealized increment is distributed as income but out of
principal, the principal shall be reimbursed for the increment when
realized.

8.

(a)    If a trustee uses any part of the principal in the continuance
of a business of which the settlor or the decedent was a sole pro-
prietor or a partner, the net profits of the business, computed in
accordance with generally accepted accounting principles for a com-
parable business, are income. If a loss results in any fiscal or calendar
year, the loss falls on principal and shall not be carried into any
other fiscal or calendar year for purposes of calculating net income.

(b)    Generally accepted accounting principles shall be used to
determine income from an agricultural or farming operation, includ-
ing the raising of animals or the operation of a nursery.

9.

(a)    If any part of the principal consists of a right to receive
royalties, overriding or limited royalties, working interests, produc-
tion payments, net profit interests, or other interests in minerals or
other natural resources in, on or under land, the receipts from taking
the natural resources from the land shall be allocated as follows:

(1)    If received as rent on a lease or extension payments on a
lease, the receipts are income.

(2)    If received from a production payment, the receipts are in-
come to the extent of any factor for interest or its equivalent provided
in the governing instrument. There shall be allocated to principal
the fraction of the balance of the receipts which the unrecovered cost
of the production payment bears to the balance owed on the produc-
tion payment, exclusive of any factor for interest or its equivalent.
The receipts not allocated to principal are income.

(3)    If received as a royalty, overriding or limited royalty, or
bonus, or from a working, net profit, or any other interest in minerals
or other natural resources, receipts not provided for in the preceding
paragraphs of this section shall be apportioned on a yearly basis in
accordance with this paragraph whether or not any natural resource
was being taken from the land at the time the trust was established.
Twenty-seven and one-half per cent of the gross receipts (but not to
exceed 50% of the net receipts remaining after payment of all ex-
penses, direct and indirect, computed without allowance for deple-
tion) shall be added to principal as an allowance for depletion. The
balance of the gross receipts, after payment therefrom of all expenses,
direct and indirect, is income.

(b)    If a trustee, on the effective date of this Article, held an item
of depletable property of a type specified in this section he shall
allocate receipts from the property in the manner used before the
effective date of this Article, but as to all depletable property acquired
after the effective date of this Article by an existing or new trust, the
method of allocation provided herein shall be used.

(c)    This section does not apply to timber, water, soil, sod, dirt,
turf, or mosses.