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IRS.gov Website
Publication 535
taxmap/pubs/p535-047.htm#en_us_publink1000209031

Chapter 9
Depletion(p33)

taxmap/pubs/p535-047.htm#en_us_publink1000272104Introduction

Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. The depletion deduction allows an owner or operator to account for the reduction of a product's reserves.
There are two ways of figuring depletion: cost depletion and percentage depletion. For mineral property, you generally must use the method that gives you the larger deduction. For standing timber, you must use cost depletion.
taxmap/pubs/p535-047.htm#en_us_publink1000209033

Who Can
Claim Depletion?(p33)

rule
If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. More than one person can have an economic interest in the same mineral deposit or timber. In the case of leased property, the depletion deduction is divided between the lessor and the lessee.
You have an economic interest if both the following apply. A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. A production payment carved out of, or retained on the sale of, mineral property is not an economic interest.
EIC
Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax.
taxmap/pubs/p535-047.htm#en_us_publink1000269326

Basis adjustment for depletion.(p33)

rule
You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater.