Cost Depletion

One of two accounting methods used to allocate the costs of extracting natural resources, such as timber, minerals and oil, and to take those costs as a tax deduction. Cost depletion looks at the total amount of the resource to be extracted, how much was extracted during the tax year and the amount of money spent to extract it. The proportion of resources extracted divided by the total resources is the percentage used to help determine the deduction in that period.

Depletion is similar to depreciation, which is used to allocate the cost of tangible assets like equipment over their useful lives. The other method of depletion is "percentage depletion", which is calculated by multiplying the gross income received in the tax year from extracting a resource by an IRS-determined percentage established for each resource (for example, if the percentage was 22%, you would multiply your gross income by 22%).


Investment dictionary. . 2012.

Look at other dictionaries:

  • cost depletion — A deduction for federal income tax allowed an owner of mineral or timber property. IRC § 612 …   Ballentine's law dictionary

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  • Depletion — An accrual accounting method that companies use to allocate the cost of extracting natural resources such as timber, minerals and oil from the earth. Depletion is calculated for tax deduction and bookkeeping purposes. Unlike depreciation and… …   Investment dictionary

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  • cost — Expense; price. The sum or equivalent expended, paid or charged for something. See also actual cost costs net cost rate costing cost bond …   Black's law dictionary

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  • depletion — An emptying, exhausting or wasting of assets. A reduction during taxable year of oil, gas or other mineral deposits or reserves (i.e., wasting assets) as a result of production. The process by which the cost or other basis of a natural resource… …   Black's law dictionary

  • depletion — An emptying, exhausting or wasting of assets. A reduction during taxable year of oil, gas or other mineral deposits or reserves (i.e., wasting assets) as a result of production. The process by which the cost or other basis of a natural resource… …   Black's law dictionary

  • Cost basis — Part of a series on Taxation Taxation in the United States …   Wikipedia

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