Depletion Allowance; Method of Computation

Except in the case of metal mines with respect to which percentage depletion is allowed, the computation of the allowance for depletion of mines, oil and gas wells, other natural deposits and timber, for a given year shall be based upon the number of units of the particular class removed during that year and the unit cost for depletion purposes of such deposits or timber. The unit cost for depletion purposes of any taxable period is to be determined by dividing the sum of the amount to be recovered by depletion of the particular class at the beginning of the taxable period and the additions at cost during the period by the sum of the units of the particular class on hand at the beginning of the taxable period and the number of units acquired during such period. As to capitalization of carrying charges (items of expenses which do not add to the value of the property, such as interest and taxes), see IRC Section 266.