Texas Message Board

Depletion can be defined a couple of different ways.  The 27.50% you refer to is Texas State Statute for the Trust Principal and Income Act.  This is the portion of each royalty check assignable to the principal of a trust offsetting the decline in value of a depleting asset.  Secondly, the IRS Tax Code also has a tax deduction called depletion tha can be in the form of percentage depletion. at 15% or cost depletion.  When filing your 1040 this number will be illustrated on Schedule E.  The concept is again due to a depleting asset.

We will need one of our tax experts to define cost vs per centage depletion.  Based upon my limited knowledgeI know a calculation is required to determine the cost depletion deduction.  I would guess the majority of mineral owners use per centage depletion.