Tax Aspects of Investing in Oil & Natural Gas

Discover significant tax advantages and investment opportunities in the oil and natural gas sector, with deductions up to 90% in the first year and ongoing benefits throughout a well’s productive life.

First Year Tax Savings & Ongoing Benefits

1 Intangible Drilling Costs (IDCs)

Deduct up to 90+% of investment costs in Year 1, as allowed under Section 263(c) of the Internal Revenue Code. Applies to expenses like labor, chemicals and equipment costs incurred to prepare wells for production.

Requirement: Drilling must commence within 90 days of the tax year-end for this deduction to be eligible.

2 Percentage Depletion Allowance

Receive a tax-free return by deducting a percentage of gross income generated from oil and gas wells. This deduction applies annually and lasts for the productive life of the well.

The deduction is applied regardless of investment costs, effectively reducing taxable income over time.

3 Alternative Minimum Tax Relief

IDCs that are not capitalized or amortized are not treated as preference items for AMT purposes. Investors can deduct these costs up to 40% of their alternative minimum taxable income.

This ensures tax efficiency, even for investors subject to AMT.

Investment Units & Tax Benefits

INVESTMENT TYPE

General Partner (GP Units)

Limited Partner (LP Units)

Limited Liability Company (LLC Units)

TAX BENEFIT

90+% 2025 tax deduction on investment

Passive income deductions with carry-

forward losses

UBTI exemption for retirement accounts

ELIGIBILITY

Open to Qualified Investors

Restricted to Retirement Accounts

General Partner investors benefit from IDC deductions constituting at least 69% of the investment amount, with most states allowing similar deductions for state income taxes. Limited Partner investors can control allocation in the Subscription Document, while LLC investors receive distributions exempt from unrelated business taxable income (UBTI).

Investment Objectives

Tax Deductions

A substantial benefit to participants is the tax deductions related to Intangible Drilling Costs (IDCs) in 2025, offering significant tax savings.

How it works: If drilling is completed within 3.5 months, up to 92% of net subscription proceeds can offset taxable income.

Cash Distributions

Investors receive quarterly cash distributions beginning approximately 12 months after the closing of the Partnership, contingent on sufficient partnership revenues.

Preferred Return: Targeting 12% annual cash flow during the first five years, once 75% of the wells are generating production revenues.

Ongoing Reporting

Quarterly updates on income, expenses, and material activity
Annual tax information (K-1s)
Annual LLC valuations (if applicable) for qualified entities

Depletion Allowance

Offset a portion of gross production income with tax deductions from percentage depletion (15-25%). Depletion is allocated among investors based on their interest in Partnership revenues.

Example: For every $100,000 in gross revenue, deduct $15,000 under the 15% depletion allowance.