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Industry tax guide

Mining tax and accounting

Tax planning for exploration, development and extraction, each with its own rules.

Mining business environment

Mining companies spend years exploring and developing a site before production, then extract a resource that is used up as they sell it. Equipment is heavy and expensive, and the end of each project brings reclamation costs.

The tax code treats each phase differently, and the choices made early, such as how exploration costs are handled, affect deductions for the life of the mine.

Compared with a general business

What makes taxes different for mining

Depletion instead of ordinary cost recovery

The cost of the deposit is recovered through cost or percentage depletion, with rates set by mineral.

Exploration and development elections

Section 617 exploration and Section 616 development costs have their own deduct-or-defer elections and recapture.

Reclamation obligations

Reclamation and closing costs have special timing rules and, in some cases, reserve elections.

Severance taxes

Most mining states levy severance taxes on extracted minerals, separate from income tax.

The rules in detail

Tax rules for mining

Percentage and cost depletion

Mine operators recover the cost of the mineral deposit through depletion, taking the larger of cost depletion or percentage depletion. Percentage depletion uses a set rate for each mineral, applied to gross income from the property and limited by taxable income.

Exploration costs

Costs to find the extent and quality of a deposit can be deducted as paid under Section 617, then recaptured when the mine reaches production, or capitalized. The choice affects both current deductions and later depletion.

Development costs

Once a deposit is shown to exist in commercial quantity, development costs such as shafts and access roads can be deducted as paid under Section 616 or deferred and deducted as the minerals are sold.

Planning moves

Ways to save tax in mining

  1. Take the larger of cost or percentage depletion

    Calculated every year for each property.

  2. Deduct exploration costs when they help most

    Section 617 deductions are timed against current income and later recapture.

  3. Deduct development costs as paid

    Section 616 deductions accelerate recovery of shafts and roads.

  4. Use bonus depreciation on equipment

    Heavy equipment acquired after January 19, 2025 qualifies at 100%.

  5. Plan reclamation deductions

    Reclamation reserves and timing are reviewed with your obligations.

  6. Coordinate severance and income taxes

    Severance tax payments are recorded so they reduce income tax where allowed.

Working with OICPA

How we help

Service

Choose exploration and development elections

We model deducting versus capitalizing for each project before the return is filed.

Business Tax Advisory
Service

Equipment write-offs

Haul trucks, processing equipment and conveyors with 100% bonus depreciation for property acquired after January 19, 2025.

Business Tax Planning

Bookkeeping and reporting

The accounting behind the tax work

Separate operating results from development spending and coordinate resource-specific accounting and tax questions with industry specialists.

The operating challenge

Exploration, development, extraction, and site obligations create different accounting questions that need more detail than a single project expense account.

The records that matter

Project phase budgets, mineral interest agreements, equipment schedules, production records, and site obligations give the review a practical starting point. We identify missing information before recommending changes.

What you can expect

  • A prioritized review of the industry-specific accounting issues above
  • A tailored reporting and document checklist based on your operating records
  • An agreed action plan connecting financial reporting, tax deadlines, and specialist coordination

Frequently asked questions

Should we deduct exploration costs now?

Often, if the deduction offsets other income today. The deduction is recaptured when the mine starts production, so we compare the timing value with the effect on later depletion.

Can we take percentage depletion every year?

If it is larger than cost depletion, yes, subject to the taxable income limit from the property. Percentage depletion can continue even after the deposit's cost basis is fully recovered.

Are reclamation costs deductible?

Generally when the reclamation work is performed, with special rules for certain mining reclamation reserves. We review your obligations and how they are funded.

Related articles

References

  1. 26 U.S. Code § 613: Percentage depletionLegal Information Institute, Cornell Law School
  2. 26 U.S. Code § 616: Development expendituresLegal Information Institute, Cornell Law School
  3. 26 U.S. Code § 617: Deduction and recapture of certain mining exploration expendituresLegal Information Institute, Cornell Law School
  4. Publication 946 (2025), How To Depreciate PropertyInternal Revenue Service

Rules reflect federal tax law as of November 2026.