PRIA, Government Policy, Made Personal

Summary

Allows a deduction from taxable income for using up natural resources and for wear and tear on related improvements for mines, oil and gas wells, other natural deposits, and timber. The deduction must be a reasonable amount that fits each situation and follow rules the Secretary sets. "Mines" also covers waste or residue deposits treated as mining under section 613(c). If work shows the amount you can recover is bigger or smaller than you first thought, you must update that estimate (but not the original depletion basis) and use the new estimate for later years. If the property is leased, the deduction is split fairly between owner and renter. A person with a life interest is treated as the owner and gets the deduction. For trusts, split the deduction according to the trust document or by each party’s share of trust income. For estates, divide the deduction between the estate and beneficiaries based on the income each gets. See section 167 for other rules about depreciation of improvements.

Title 26, §611

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule

In the case of mines, oil and gas wells, other natural deposits, and timber, there shall be allowed as a deduction in computing taxable income a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case; such reasonable allowance in all cases to be made under regulations prescribed by the Secretary. For purposes of this part, the term “mines” includes deposits of waste or residue, the extraction of ores or minerals from which is treated as mining under section 613(c). In any case in which it is ascertained as a result of operations or of development work that the recoverable units are greater or less than the prior estimate thereof, then such prior estimate (but not the basis for depletion) shall be revised and the allowance under this section for subsequent taxable years shall be based on such revised estimate.

(b)Special rules

(1)Leases

In the case of a lease, the deduction under this section shall be equitably apportioned between the lessor and lessee.

(2)Life tenant and remainderman

In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant.

(3)Property held in trust

In the case of property held in trust, the deduction under this section shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each.

(4)Property held by estate

In the case of an estate, the deduction under this section shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the income of the estate allocable to each.

(c)Cross reference

For other rules applicable to depreciation of improvements, see section 167.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1976—Subsec. (a). Pub. L. 94–455 struck out “or his delegate” after “Secretary”. 1958—Subsec. (d)(4). Pub. L. 85–866 substituted “devisees” for “devises”.

Statutory Notes and Related Subsidiaries

Effective Date

of 1958 AmendmentAmendment by Pub. L. 85–866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c)(1) of Pub. L. 85–866, set out as a note under section 165 of this title.

§611 Allowance of Deduction for Depletion