The Intangible Drilling Cost Tax Deduction

Energy industry veteran Todd Esse is the co-founder of Southport Energy Partners, LLC. One of the areas that Todd Esse’s company does business in is oil and gas exploration and production. There are a number of tax incentives which make participating in oil and gas ventures an attractive business proposition. Among these is the Intangible Drilling Cost Tax Deduction.

There are intangible expenses when drilling a well, such as renting drilling rigs, site preparation chemicals, lubricants, and labor. These expenses do not result in the producer gaining any physical assets. After they are spent, these costs have no salvage value. Known as intangible drilling costs (IDCs), they make up from 65 to 80 percent of a well’s cost and are 100 percent tax deductible for the year of the expense, or they can be amortized over 60 months.

In one form or another the basic IDC tax deduction has been around for 100 years. This deduction enables producers to quickly recover those investment costs and reinvest them back into new exploration and production activities.

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