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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.
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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.
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.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary