Saturday, March 8, 2008

Full tax deduction against both active and passive income for all invested funds in oil and gas drilling ventures

All funds invested in a properly structured domestic oil/gas drilling venture are fully tax deductible.
Funds invested in a oil and gas drilling venture go toward paying two types of tax deductible costs to drill and put a well online: intangible and tangible costs. Intangible Drilling Costs (IDCs) can be fully deducted the first year a well is drilled and is typically 65 - 80% of the funds invested to drill and put a well in production. Tangible costs can be deducted over seven years. Deducting both intangible and tangible costs against both ative and passive income allows the investor to significantly save on income taxes by deducting the full amount invested in a oil and gas drilling venture.

What is included in Intangible Drilling Costs (IDC)?
IDC includes those items that do not stay with the well once it is put into production. These costs include fees paid to the driller, operator, sales agents, lawyers, producers, accountant, and others. It also includes other non-depreiable costs such as fuel, mud (a thick liquid used to lubricate the drill bit and to bring drilled particles to the surface), etc.

What is included in Tangible Drilling Costs (TDC)?
TDC includes those items that continue with the well when it is in production such as the cost of a pump for the well, pipelines to collect the oil and gas, storage tanks to store the oil and gas, the road up to the well and associated asphalt covering if used, etc.

Understanding these deductions from an example.
Let’s look at an example to see how these tax advantages come into play. Assume you invest $100,000 into the partnership where 80% of your investment goes toward intangible drilling costs. Once in production, the well pays you a net income of $10,000 per month. Also, your combined State and Federal tax rate is 50%. First we will look at what portion of your total investment will be deductible. Doing the math, since 80% of your investment went to pay intangible drilling costs, you can deduct $80,000 of your investment the first year against both active and passive income. That means you have saved $40,000 in taxes which would have been paid on $80,000 income at the 50% tax bracket. The remaining $20,000 of your invested funds go toward tangible costs and can be fully deducted over seven years against both active and passive income. The end result is the full $100,000 invested in the well is completely deducted against all income types.

Again, only investment in domestic oil/gas drilling ventures provide full writeoff of all invested funds against all income types.
No other investment vehicle besides an oil and gas drilling venture gives you such large deductions in the first year with the remainder over the seven years to where all of the invested funds are eventually deducted.

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Copyright 2008 Ole Cram. Ole Cram is President of Marcobe Investments, Inc., a corporation that invests in various oil and gas ventures and refers accredited investors, investment managers, financial advisors, investment funds, and others to the associated oil producer of these projects for their consideration to also participate. Feel free to email us at with any questions, thoughts, or requests for information on what projects we are invested in.

This article was posted at Accredited Investor Blog: Past articles can easily be found at This article is provided for educational purposes only and is not meant to be a substitute for tax, legal, financial, or other registered professional advice for your specific situation. Always seek the advice of a professional before making any related decision. Sphere: Related Content

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