Percentage Depletion


Also found in: Encyclopedia.

Percentage Depletion

A tax deduction that a miner, driller, or other producer of a non-renewable natural resource may take. It is calculated as a set percentage, which differs depending on the material, by which one may reduce one's gross income for tax purposes. For example, an oil driller in the United States may take a 15% tax deduction from his/her gross income on all income derived from the drilling of oil. Percentage depletion exists in order to encourage the exploration for and use of natural resources within the United States.

percentage depletion

Depletion calculated as a percentage of gross income derived from a natural resource. Percentage depletion is independent of the cost of the resource.

Percentage Depletion

The deduction for percentage depletion is a specified percentage of the gross income from the property, subject to other limits. Percentage depletion is allowed for nearly all natural resources, except timber. See also Cost Depletion.
Mentioned in ?
References in periodicals archive ?
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 (Secs.
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.