Quick Tip:

Marginal percentage depletion rate

The regular percentage depletion rate for independent producers and royalty owners is 15%. For qualifying marginal production (less than 15 daily BOE) this rate is increased by one percentage point for each dollar the price of crude oil is less than $20 per barrel. IRS determined the applicable percentage depletion rates for marginal production for the following calendar years. Since the price of oil has been above $20 per barrel for the last few years, there has been no increase for the marginal depletion rate.

Calendar Year Applicable Percentage Depletion Rate
2017 15%
2016 15%

Net taxable income limitation for percentage depletion

Percentage depletion for oil and gas production is 15% of gross revenue limited to 100% of a property’s net income. For many years prior to 2012, the 100% of net income limitation did not apply to marginal production. The American Taxpayer Relief Act of 2012 did not extend this provision.