Oil & Gas Investments for Tax Savings

1. Intangible Drilling Costs (IDCs)
65–80% of the initial investment often qualifies as intangible drilling costs, which are 100% deductible in
the year incurred.

2. Tangible Drilling Costs
Equipment costs with salvage value are depreciated over 7 years under MACRS.

3. Depletion Allowance
Investors may deduct 15% of gross income from the property as a depletion deduction once the well is
producing.

4. Active vs. Passive Income Treatment
Unlike many tax shelters, oil and gas programs may offset W-2 wages or business income depending
on structure.

5. Small Producer Tax Exemption
Up to 15% of gross oil and gas income may be excluded for independent producers.

6. AMT Advantage
Many oil and gas deductions are not preference items under the Alternative Minimum Tax.

7. 1031 Exchanges
Certain oil and gas working interests qualify for like-kind exchanges, deferring capital gains.

Item	Amount	Tax Treatment
Intangible Drilling Costs (75%)	$75,000	Deductible in Year 1
Tangible Drilling Costs (25%)	$25,000	Depreciated over 7 years
Potential Tax Savings (at 37% bracket)	$27,750+	Immediate

Disclaimer: Oil and gas investments carry significant risks, including potential loss of principal. This summary is for educational purposes only and does not constitute tax or investment advice. Consult with Tandy Consulting Inc. and your investment advisor before making decisions.