Percentage Depletion


DEFINITION of '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 earth. Percentage depletion is provided as an incentive for drillers and investors to develop domestic mineral and energy production.

BREAKING DOWN 'Percentage Depletion'

Oil and gas investments at the wellhead have become one of the most tax-advantaged investments available in America today, because of the depletion allowance. Approximately 15% of all income from oil and gas is tax-free for small investors and producers. There is no dollar limit as to the total amount of depletion one can deduct from income from qualified nonrenewable resources.

  1. Reserves to Production Ratio

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  2. Nonrenewable Resource

    A resource of economic value that cannot be readily replaced ...
  3. Tax Shelter

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  4. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
  5. Depressed

    A state or condition of a market, product or security characterized ...
  6. Depletion

    An accrual accounting method that companies use to allocate the ...
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