The 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
Swan Energy partners with tax deduction
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