Friday, March 7, 2008

Reducing your Alternative Minimum Tax (AMT) by investment in an oil and gas drilling venture

You can reduce up to 40% of your Alternative Minimum Tax (AMT) income by investing in a domestic Oil and Gas (O&G) drilling venture and the resulting income generated from the wells will not put you in an AMT situation. These are two unique benefits to independent oil and gas producer ventures/investment opportunities that no other investments give if you are in an AMT situation.

As stated, up to 40% of your alternative minimum tax income can be reduced a dollar for every invested dollar in an Oil or gas drilling venture. As an example, assume an investor has $300,000 in alternative minimum tax income. This investor can use up to 40% of this $300,000, or $120,000, in intangible drilling costs deductions. Intangible Drilling Costs (IDC) deductions are excluded as tax preference items for small producers and associated investors. Also, by electing to write off IDCs over five years you can increase the limit of your deductions without affecting AMT.

The bottom line is oil and gas well participation is a vehicle to reduce up to 40% of your alternative minimum tax income while the resulting yearly income will not put you in a AMT situation. For more information, you can read Page 6 of IRS Instructions for Form 6251 / Line 25 (2007 version). You can click on the title for the 2007 instructions that explain line 25 at the time of this posting.

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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.

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