7880 / How is percentage depletion calculated on oil or gas properties in the case of regulated natural gas and natural gas sold under a fixed contract?

The applicable percentage in the case of a depletable property that qualifies as “regulated natural gas” or “domestic gas sold under fixed contract” (see Q 7874) is 22 percent.¹ Thus, 22 percent of the “gross income” received from the property is the amount allowable as percentage depletion.² Remember, however, that the amount which must be deducted as the depletion allowance on a specific property is the greater of the percentage depletion or cost depletion (see Q 7873).³

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1. IRC § 613A(b)(1).

2. IRC § 613(a).

3. IRC § 613(a).