Title: Oklahoma Depletion-Oklahoma allows a depletion deduction for qualifying oil and gas production from Oklahoma properties. For taxpayers eligible to use the Oklahoma percentage-depletion method, the deduction is generally calculated using a 22% depletion rate applied to qualifying gross income from the Oklahoma property, subject to the limitations and other requirements under Oklahoma law.
Key Rules for Oklahoma Depletion
- Option to Claim: Taxpayers meeting the applicable requirements may elect to claim Oklahoma percentage depletion at 22% of qualifying gross income from each Oklahoma property.
- Federal Depletion: Oklahoma depletion is subject to Oklahoma-specific rules concerning the federal depletion deduction claimed for the same property. The Oklahoma deduction should be calculated using the method and limitations prescribed by Oklahoma law rather than simply treating the deduction as 22% of income less federal depletion in every case.
- Federal 65% Limitation: Federal depletion limitations do not automatically determine the Oklahoma depletion deduction. Any federal depletion limitation or carryover must be considered under the specific Oklahoma depletion rules.
- Reporting Requirement: A detailed schedule by property must generally be provided with the Oklahoma return showing the information used to calculate the depletion deduction.
- Limitation for Major Oil Companies: A major oil company subject to 52 O.S. ยง 288.2 is generally limited to depletion of 50% of net income, computed without depletion, from each property, subject to the applicable Oklahoma requirements.
- Lease Bonus Income: Lease bonus payments associated with Oklahoma oil and gas properties may need to be considered in determining the income attributable to the property for Oklahoma depletion purposes. The treatment depends on the nature of the payment and the taxpayer's interest in the property.
- Depletion Deduction Limitation: The Oklahoma depletion deduction must be supported by qualifying income and the applicable Oklahoma property and depletion calculations. A lease bonus payment does not automatically create a depletion deduction without satisfying the applicable Oklahoma requirements.
Source:
Form 511 - Oklahoma Individual Income Tax Return
Disclaimer: Always verify details with the official Oklahoma Department of Revenue forms and instructions, as tax rules may change and individual circumstances vary. For complex situations, consult a CPA or tax attorney.