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:
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
- 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
- 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.