Percentage Depletion

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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.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

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24, 1992, repealed the excess percentage depletion preference for tax years beginning after 1992 - except for integrated oil companies (large retailers and refiners).

Supreme Court defines "property" for excess percentage depletion AMT

Accordingly, 75% of the excess of percentage depletion over cost depletion will be subject to the alternative minimum tax (AMT).

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Landowners are more likely to qualify for percentage depletion. The amount of the percentage depletion deduction is 15% of the taxpayer's gross income from the property, limited to the lesser of the taxpayer's taxable income from the property or 65% of the taxpayer's taxable income.

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* Percentage depletion was designed to increase overall oil and gas production and small petroleum producers.

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It's 7 times less costly than the "percentage depletion allowance," one of many tax breaks bestowed upon the oil industry, which continues to report enormous profits.

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As most investors will be permitted to take deductions for percentage depletion on producing wells, otherwise taxable income (whether in the form of cash distributions from the oil and gas program or income from other sources of the taxpayer) will be "sheltered" to the extent of those deductions.

Part XI: Oil and gas

There are a number of deductions specific to the oil and gas industry, such as the ability to expense intangible drilling costs (IDCs) and to claim percentage depletion instead of cost depletion.

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Depletion deductions compensate the owner of wasting mineral assets "for the part exhausted in production, so that when the minerals are gone, the owner's capital and his capital assets remain unimpaired."16 There are two different types of depletion: cost depletion and percentage depletion. If a taxpayer is eligible to take both percentage depletion and cost depletion, the amount that results in the larger deduction must be taken.

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"Percentage depletion" allows for a deduction of a specified percentage of the gross income derived from the property (after reduction for any rents or royalties the investor must pay with respect to that property).

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* Suspension of the 100 percent taxable income limit on percentage depletion deductions for oil and gas production from marginal properties;

AB 115 conformity: AB 115 conforms state with federal tax acts, with some exceptions