Yes, you need to take the tax deduction because you must reduce the basis of your property by the depletion allowed or allowable, whichever is greater, but not below zero.
If you have an economic interest in a mineral property or standing timber, you can take a deduction for depletion. More than one person can have an economic interest in the same mineral deposit or timber. In the case of leased property, the depletion deduction is divided between the lessor and the lessee. You have an economic interest if both the following apply.
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You have acquired by investment any interest in mineral deposits or standing timber.
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You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment.
A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. For more details on depletion deductions, see this IRS publication.
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