To claim a depletion deduction, the taxpayer must have an economic interest in the mineral property, and the legal right to the income from the oil and gas extraction. Treas Reg. §1.611-1(b). In computing depletion for oil and gas production, the greater of cost depletion or percentage depletion may be deducted. Cost depletion is computed by multiplying the acquisition price of the leasehold (for example) subtracting depletion deducted in prior years (cost or percentage) and multiplying by a fraction. Under percentage depletion, the deduction for the recovery of one’s capital investment is a fixed percentage of the gross income (sales revenue) from the sale of the oil or gas. For oil and gas royalty owners, percentage depletion is calculated using a rate of 15% of the gross income based on your average daily production of crude oil or For purposes of basis adjustments and determining whether cost depletion exceeds percentage depletion with respect to the production from a property, any amount disallowed as a deduction on the application of this paragraph shall be allocated to the respective properties from which the oil or gas was produced in proportion to the percentage
Percentage Depletion: A taxable deduction that assigns a set percentage of depletion to the gross income derived from extracting fossil fuels, minerals or other nonrenewable resources from the L. 91–172, § 501(a), reduced the percentage depletion rate on oil and gas wells from 27½ percent to 22 percent, reduced to 22 percent other minerals formerly receiving percentage depletion at a rate of 23 percent, added molybdenum in the category of minerals subject to the 22 percent depletion rate, reduced to 14 percent the rate on
14 Jul 2019 Percentage depletion yields a deduction equal to 15% of the gross income generated by sale of oil and natural gas. Cost depletion calculates 20 Jul 2018 Carrie Brandon Elliot reviews provisions of the Tax Cuts and Jobs Act that affect only the oil and gas industry.
For purposes of basis adjustments and determining whether cost depletion exceeds percentage depletion with respect to the production from a property, any amount disallowed as a deduction on the application of this paragraph shall be allocated to the respective properties from which the oil or gas was produced in proportion to the percentage In Ohio, it has been rare for many landowners to allocate part of the basis to the oil and gas reserves. Because of this, most landowners will not be able to use the cost depletion method. However, they can use percentage depletion deduction which will be described more in detail later in this fact sheet. Included in Exhibit 4.41.1-1 is a reference guide to aid research and to supply leads to the major tax law areas concerning the oil and gas industry. Many examination features in the oil and gas industry are common to commercial enterprises but the handbook will highlight those areas peculiar to the industry.
Percentage Depletion Applied to In com e from Oil andi Gas Production 1" In computing taxable income, pro- ducers of oil and gas in the United States are 15 May 2015 natural gas. • IPRO percentage depletion is limited to 65% of the taxpayer's taxable income, as adjusted for this computation. 4 30 Nov 2017 producing life of the oil or gas property;. – Percentage depletion reduces the effective tax rate on royalty income;. – Passive activity loss rules Part of the Oil, Gas, and Mineral Law Commons, and the Taxation-Federal Commons Only the percentage depletion method is dealt with in this comment. Depletion is the using up of natural resources by mining, drilling, quarrying stone, producer or royalty owner to use percentage depletion for oil and gas. Freeman, Harrop A., “Percentage Depletion for Oil: A Policy Issue,” Indiana Law Journal “Report of Committee on Tax Hearing: Representatives of Oil and Gas