The amount of taxable royalties, but not land lease payments, may be reduced by a depletion deduction, calculated either under the percentage depletion
method or the cost depletion method.
For example, it does not include extension provisions related to the 100 percent-of-net-income limitation on percentage depletion
for oil and gas from marginal wells or brownfields environmental remediation expensing.
A qualified trade or business is any trade or business other than businesses that (1) provide personal or professional services; (2) own, deal in, or rent real property; (3) operate a farm; (4) operate a hotel, motel, restaurant, or similar business; (5) conduct banking, insurance, leasing, financing, investing, or a similar business; or (6) extract products subject to percentage depletion
was designed to increase overall oil and gas production and small petroleum producers.
Suspension of the 100 percent taxable income limit on percentage depletion
deductions for oil and gas production from marginal properties;
He also asked for current-year expensing of geological and geophysical costs, elimination of the net income limitation on percentage depletion
for marginal wells, elimination of the 65 percent net taxable income limit on percentage depletion
, and eliminating paris of the alternative minimum tax.
100% net income limitation for percentage depletion
from marginal wells was suspended for an additional two years to include taxable years beginning in 2002 and 2003.
The 65% net income limit for percentage depletion
of independently operated oil and gas wells would be repealed.
The percentage depletion
allowance, first codified early in this century, is based on the idea that as minerals are extracted, a mine loses value.
This provision of the tax code is known as the percentage depletion
allowance and, typically, results in lowering a company's Federal income tax liability.
The regulations also say that errors in the computation of the foreign tax credit, net operating loss, percentage depletion
, or investment credit are not methods of accounting.
A technical correction of the percentage depletion
rules for secondary and tertiary oil and gas production.