Biden wants to eliminate percentage depletion allowance

Part of the proposed tax bill apparently includes eliminating the 15% percentage depletion allowance that royalty owners get to deduct on their tax returns. So in other words, real estate developers will get to depreciate their deteriorating improvements, but you will not get no deduction for your mineral assets being depleted. Apparently mineral owners are being lumped in with “big oil subsidies”, with no one pushing this bill courageous enough to point out the difference. The funny thing (if you cannot cry then laugh?) is that percentage depletion was eliminated for big producers in the 1970s and is only currently available to small operators and royalty owners.

Below is NARO’s response on testimony they are submitting to the Senate Finance Committee.

Final Senate Committee on Finance Testimony 20210506.pdf (97.0 KB)

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Please read the attachment above. It gives you the arguments if you feel inclined to contact your representative or Senators.

Thank You so much for posting this ~! ! !

Thank you. I wrote to both of my Senators in Arizona to urge them to keep the percentage depletion allowance. I also sent copies of my email to family members who also have royalty interests.

That is excellent testimony by NARO clearly laying out how middle income royalty owners will be impacted, which goes against President Biden’s promise not to raise taxes on anyone making less than $400K/ year. It seems that part of the bill could easily be modified.

Thanks Wade for bringing this to our attention. I know I am late reading this, but good info and yes it does affect the little guys that have small holdings and small amounts of income as we age. Many thanks, MK

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Elections do have consequences. Good thing we have the tax and spend Socialist Liberals in charge to ensure that any money we make gets taxed to a point where there is very little left to the leaseholder.

Here is the letter NARO and 37 other organizations sent to Congress about the foolishness of eliminating percentage depletion allowance. IF YOU ARE INCLINED TO CALL THE DEMOCRATIC REPRESENTATIVES AND SENATORS IN YOUR STATE YOU NEED TO DO SO ASAP. THE LETTER HAS A LOT OF GOOD TALKING POINTS, BUT OTHERS ARE:

- Percentage Depletion Allowance is the same concept as depreciation for real estate investors
- The vast majority of the millions of mineral owners who get royalties make less than $1000/mo
- This is a 15% tax increase on the royalties of millions of Americans making less than $400,000/year
- Eliminating percentage depletion will lead to more abandoned wells
- Trying to impose capital gains taxes on death even if the property has not sold will cause sales of family farms, ranches, and minerals
- Most of those that will have to sell to pay capital gains are small, thinly capitalized owners who don’t have the cash to pay the taxes
- The buyers of these family minerals will be big mineral buying hedge funds, which will increase wealth inequality
- We should not be raising taxes when it will drive production overseas and we will lose our energy independence

Ways Means Comm Letter 20210908.pdf (1.8 MB)

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Some good news out of Ways and Means in the House. Eliminating percentage depletion allowance, and imposing capital gains on death even if the property has not been sold are out of the current markup. We also understand 1031 exchanges are out. Estate Tax caps will go from $11.5 million to $5 million per person, and capital gains and tax bracket increases are still in. That only scratches the surface. See the attachment for a summary.

There are no guarantees they could not slip these back in, so we need to keep up pressure on the House. However, the focus will swing back to the Senate to make sure these are not included in anything that comes out of the Senate also.

NSWA – Ways and Means Reconciliation Offsets_ (002).pdf (531.8 KB)