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Tax Incentives
image When investing in MED's direct participation program, the investment capital contributed is used to acquire properties to develop oil and gas reserves - the produced oil, and gas is sold monthly with revenues etc. The approved tax incentives pass through directly to the partners, therefore, allowing for a considerable reduction in personal tax liability in most circumstances. Here are the different tax advantages:
  • Intangible Drilling Costs:
    Includes all labor, chemicals, mud, grease and other items neces- sary for drilling that makes up 65-80% of the total cost. These are 100% deductible in the year incurred.
  • Tangible Drilling Costs:
    This includes all the equipment necessary to completed a well tanks, pump jacks, rods, tubing, down hole pumps etc. These are also 100% deductible but must be depreciated over a seven year period.
  • Active vs Passive Income:
    Tax code states that a Working Interest in an oil and gas well is not considered to be a passive activity. This means that all net losses are active income and can be offset against all other ordinary income.
  • Producer Tax Exemptions:
    Percentage Depletion Allowance is specifically intended to encourage participation from small companies and investors in oil and gas drilling. This tax benefit allows 15% of all gross income from oil and gas wells to be tax-free.
  • Lease Costs:
    Purchases of Leases and mineral rights are subject to cost depletion which is an operating expense. Administrative, legal, accounting expenses and lease operating costs are also 100% tax deductible in they year they incurred.
Each potential investor is urged to consult his / her own tax advisor with respect to individual tax matters. MED is not certified to give tax advice. This document is for informative purposes only.

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