Percentage Depletion Law and Legal Definition

A taxable deduction that permits a fixed percentage of depletion to the gross income derived from extracting fossil fuels, underground minerals or other nonrenewable resources from the earth. It is an incentive for drillers and investors to develop domestic mineral and energy production. The calculation of percentage depletion expense is based on a percentage of gross income from the mineral property or resources from the earth. Small investors and producers can gain approximately 15% tax deduction on the income from oil and gas.