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Depletion means:
the process whereby the cost or other basis of a natural resource (such as a coal interest) is recovered upon the extraction and sale of the deposit. Method used to recover the cost of assets that diminish over time, such as oil, gas, and other natural resources. There are two ways of determining the depletion allowance: (1) cost and (2) percentage. Under the cost approach, the cost or other basis is divided by the total units expected to be recovered. Under the percentage approach, the tax law provides a special percentage factor for different types of natural resources. The applicable percentage is multiplied by the gross income from the mineral interest to arrive at the percentage allowance. Only certain oil and gas small producers (e.g., independent producers) may use percentage depletion, and percentage depletion may not exceed 50% of the taxable income from the property before the allowance for depletion. See also percentage depletion method. Former IRC (check if this IRC provision is current here) §§6l 1-617.

Description and Definition of Depletion

A deduction claimed for the use of timber or mineral resources, including oil and gas, because the resources are being depleted over time.


See Also

Further Reading

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