Generous tax incentives are provided for those who participate in natural gas development, to reduce our dependence on foreign sources.
INTANGIBLE DRILLING COSTS (IDC’s)
IDC’s are taken completely in the year of investment. The value is equal to the costs to determine if there is commercially producible gas. This is usually 70 – 75% of the cost to bring a well on line.
DEPRECIATION
Once a well is completed, the tangible portion (pumps, etc.) is depreciated over the next several years. Tangibles make up 25 – 30% of the well cost.
DEPLETION
A deduction from net revenues, recognizing that gas wells stop producing eventually. This deduction is as much as 15%, in addition to IDC’s and depreciation.
For every $1000 received as income from a well, only $850 is taxable.
REVENUES AND CASH FLOW
Net Revenues are offset by IDC’s, Depreciation and Depletion.
GIFTING
These assets may be gifted at a substantially reduced basis, after a minimum holding period.
ALTERNATIVE MINIMUM TAX
The preferences have been recently liberalized for oil and gas. Campbell advises you to consult your tax advisor.
OHIO RESIDENTS
Not available to Ohio residents.
NOTE: Since there is risk involved with exploration, it is not an appropriate undertaking for those who need to insure capital preservation. Before considering oil and gas development, individuals should consider their suitability for this type of opportunity. Individuals should fall into one of the following categories:
- They should have significant tax liability that may be offset by this kind of opportunity.
- Either their net worth or income is significant enough to not to require capital preservation as a primary objective.
- The liquidity of funds is not a primary requirement.
- Such undertakings are not needed to meet present or near term income requirements.
- Please consult your financial advisor.