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SIMPLIFIED EXAMPLE OF 1ST-YEAR
TAX DEDUCTION FOR OIL & GAS
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TAX CONSIDERATIONS OF OIL & GAS INVESTING – THE BASICS
CONGRESSIONAL INCENTIVES
INTANGIBLE DRILLING COST (IDC) TAX DEDUCTION
DEPRECIATION TAX DEDUCTION
SMALL PRODUCER’S TAX EXEMPTION- DEPLETION ALLOWANCE
ACTIVE, OR NON-PASSIVE VS. PASSIVE INCOME
ALTERNATIVE MINIMUM TAX (AMT)
Tax Benefits for the Small Producer
In the case of a successful oil and gas investment, the IRS allows for a tax write-off from one’s taxable earned income of approximately 65% – 80% of the investment amount in the year of investment. The remaining amount of the investment is depreciated over a period of seven years.
Even in the case of an unsuccessful oil and gas investment, the IRS allows almost 100% of the investment to be written off against one’s taxable earned income unlike stock investments where the investor may only writeoff a small portion of the loss (subject to certain limitations).
The IRS currently allows 15% of one’s gross Working Interest income from the sale of oil and/or gas to be derived “tax free” (this is referred to as a “depletion allowance”).
