The advantages of oil and gas investments are due to tax reduction strategies applicable to investments of this type. Each partner’s tax liability is different. Consult your personal tax advisor regarding the potential benefits of oil and gas investing.

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1) Estimated Intangible Drilling Costs (IDCs) and Tangible Drilling Costs (TDCs): 

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POTENTIAL TAX BENEFITS

INVESTED  - 100%

Intangible Drilling Costs - 55%

Tangible Drilling Costs - 45%

Total First Year Deduction Against Active Income - 100%

Hard Dollar Risk* - 63%

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*Assuming the taxpayer is in the 37% Tax Bracket.    The Tax Cut and Jobs Act of 2017 established that Tangible drilling costs, lease and well equipment, pipelines, and all other tangible personal property qualify under Section 179 and can be fully deducted when acquired and placed in service after September 27, 2017, and before January 1, 2023.

 

 

Depletion Allowance: 

Depletion is the using up of a natural resource by mining, quarrying, drilling, or felling. Depletion allowance, then, is the allowance available through the IRS code allowing an owner to account for the reduction (production) of reserves as a product is produced and sold.   For oil and gas production owners such as those in this partnership, percentage depletion is calculated using a rate of 15% of the gross income based on your average daily production of crude oil or natural gas.

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