Excess of Percentage Over Cost Depletion, Nonfuel Minerals


Energy - Alternative

Subsidy Type

Tax Expenditure

Committees of Jurisdiction

House Committee on Ways and Means, Senate Finance Committee

$40 FY 23 Budget Score (in mil.)
$400 FY 23-32 Budget Score (in mil.)

Businesses are generally allowed to recoup the capital costs associated with acquiring or creating an asset by deducting them from their taxable income. Typically, the costs are depreciated—deducted each year in proportion to the remaining useful life of the asset, corresponding to the income it generates. For natural resource assets, the costs of acquiring the reserve, such as the costs of the lease, are recovered through cost depletion—deducted in proportion to how much of the reserve has been depleted to generate income in a given year. 


Instead of cost depletion, industries extracting non-fuel minerals such as gold, silver, copper, iron ore, sand, clay and others are allowed to use percentage depletion. For these assets, companies can deduct a set percentage of the gross income generated from the asset. The percentage depletion allowance is available at rates ranging from 5 percent for sand, gravel and peat to 22 percent for minerals such as sulphur, asbestos and lead. Metal mines generally qualify for a 14 percent depletion, except for gold, silver, copper and iron ore, which qualify for a 15 percent depletion. The percentage depletion rate for foreign mines is generally 14 percent. Percentage depletion is limited to 50 percent of the taxable income from the property. Because the amount that can be deducted is not limited to the actual capital cost of acquiring the asset, companies typically claim deductions in excess of their original investment in the asset.

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