Intangible Drilling Costs Tax Treatment
2022 Tax Break: 100% Tax Write-Off of Intangible Drilling Costs (IDC) with a Direct Investment in Oil & Gas.
Provisions of the federal income tax that subsidize the domestic production of fossils include the expensing of exploration, development, and intangible drilling costs. The use of percentage depletion instead of cost depletion to recover drilling and development costs of oil and gas wells and coal mines; and numerous smaller incentives for production and distribution of oil, coal, and natural gas.
The two most significant subsidies are excess of percentage over cost depletion and expensing of exploration and development costs.
What are IDCs?
Intangible Drilling Costs (IDCs) represent all expenses an operator may incur at the well site that doesn’t produce a physical asset. The costs of labor and site preparation and renting drilling rigs are not salvageable in the oil and natural gas business.
Of the many tax-deductible investments, oil investment tax breaks offer numerous advantages unique to the industry, such as the tax treatment of intangible drilling costs, which are 100% deductible.
Excess of percentage over cost depletion allows producers to deduct a fixed percentage of gross revenue as capital expenses each year, regardless of how much they have invested.
Federal tax law allows independent producers—but not integrated companies—to deduct 15 percent of gross revenue from their oil and gas properties as percentage depletion.
By contrast, conventional cost depletion allows deduction of actual costs as the resources from a well or mine is depleted.
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