Oil and Gas Tax Incentives

Oil and Gas Tax IncentivesThe successful production of domestic oil and gas means our country is safer, our economy is stronger, and we keep more Americans working.

As a result, the federal government offers very attractive oil and gas tax incentives for investments in domestic oil and gas development.  There are three primary incentives:

Intangible Drilling Costs

Participation in a Swan Energy joint venture partnership allows partners to deduct most of their investment though Intangible Drilling Costs (IDC) in the same tax year and can be offset against active or ordinary income.  Partners receive one dollar of tax deduction for every dollar of IDC invested.  IDCs can make up roughly 85% of the total investment.  For example, an investment of $100,000 made in a Swan Energy joint venture partnership could yield up to $85,000 in tax deductions for the year the investment is made.  The IDC deduction, a non-preference item, reduces the investor’s Adjusted Gross Income and lowers their Alternative Minimum Tax.

Tangible Drilling Costs

Tangible Drilling Costs take into consideration the expenses and hard cost needed to drill wells such as wellheads, pipes and storage tanks.  These costs account for approximately 20% of the total investment and may be depreciated over 5 to 7 years.

Percentage Depletion Deductions

The Percentage Depletion Allowance, also known as “Small Producers Exemption.”  This incentive allows for 15% to 25% of the gross income from an oil and gas producing property to be tax free.  By way of example, if partners are getting a monthly revenue check of $10,000 then $1,500 to $2,000 is tax free.

Hypothetical Example


without tax deductions
Estimated Annual Income: $300,000
Tax Bracket: 33%
IRS Bill: $99,000
Swan Energy partners with tax deduction
Estimated Annual Income: $300,000
Subtract Drill & Test cost Investment: $80,000
Adjusted Gross Income: $220,000
Adjusted Tax Bracket: 33%
New IRS bill: $72,600
IRS Savings: $26,400
D & T Investment: $80,000
Subtract IRS savings: $26,400
True At-Risk Capital: $53,600

For more information email us at: info@swanenergyinc.com



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