Working Interest & Taxes
How up to 100% of a project’s intangible drilling costs can be deducted in the year they are incurred, against active income such as salary and business income.
- Deduct intangible drilling costs in year one
- Offset salary, practice and business income
- Smaller deductions each year the wells produce
Two simple ideas, working together
Drilling a well costs money in two ways. Most of it goes on things that are used up in the process, like labor, fuel and site work. These are called intangible drilling costs. The rest pays for equipment that stays in place, like pipe, wellheads and pumps.
When you own a working interest, a direct share of the wells and their costs, the tax code lets you deduct those used-up costs in the same year. And because you are an active owner rather than a silent partner in a fund, that deduction can be used against the income you already earn, such as your salary or business profits.
Where a new well’s cost typically goes
Typical industry range. The exact split comes from each project’s budget.
A big deduction up front, then smaller ones each year
The deduction supports the economics; it is never the whole case. Summit underwrites each project toward its target of 3–5x over three to five years.
Shape of the deductions over a project’s life
Illustrative shape only. Actual amounts depend on each project and each participant’s tax position.
Worth knowing before you start
- There is a yearly capFor salaried earners, only part of a large deduction may count in one year. The rest carries forward to later years.
- You can only deduct what you put inDeductions are limited to the money you actually have committed to the project.
- The minimum tax can applySome high earners pay a separate minimum tax, which can reduce the benefit.
- Selling later can bring some backIf you sell your interest, part of the earlier deductions may become taxable.
- Your state may differNot every state follows the federal rules.
Your CPA can show how each of these applies to you.
The Investor Kit
Everything in one place to help you decide whether direct oil and gas ownership is right for you: how Summit works, how the joint venture structure works, and what to expect from start to finish.
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