In most cases, the taxpayer may continue to use percentage (statutory) depletion after the initial basis has been fully recovered. In other words, the taxpayer's depletion deduction can exceed the cost of the depletable asset.

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According to the IRS, "If your combined depletion deduction (for oil or gas and other minerals) is more than the adjusted basis of the property (or the property's FMV if the deduction is not limited to adjusted basis), you can continue to claim the deduction. This is sometimes called “permitted over cost depletion.”" Therefore, the taxpayer may continue to use percentage (statutory) depletion after the initial basis has been fully recovered, even if it exceeds the cost of the depletable asset.

In Most Cases, the Taxpayer May Continue to Use Percentage