Intangible drilling costs from a direct working interest deduct against your income the same tax year — including the year a big gain lands. No 45-day identification clock. No like-kind rules. No new property to manage. Just a deduction that arrives exactly when you need it — and, if the well produces, monthly income afterward.
Run My Gain-Offset Numbers »Two sliders: the gain you're facing, and what you'd put into drilling. The math is federal law — your exact rates depend on your state and situation.
How the stacking works, so your CPA doesn’t have to correct us: an intangible-drilling-cost deduction is an ordinary deduction, so it generally displaces ordinary income first — wages, business income, short-term gains — and only reaches the income taxed at long-term capital-gain rates once the ordinary income is used up. That is why the same investment can be worth roughly 37¢ on the dollar against ordinary income and roughly 23.8¢ against a long-term gain. Which one your deduction actually lands on depends on the rest of your return.
Illustration only. The deduction reduces taxable income; the value of the offset depends on which income it displaces (long-term gains at 20% + 3.8% NIIT, or ordinary/short-term income up to 37%+), your state, and program structure. State taxes can add materially to both sides. Verify with your CPA — or ask our free Tax Answer Engine for the cited rules in seconds.
A deduction on a failed well is still a loss. Drilling is speculative and you can lose the entire investment — if that happens, the write-off reduces the damage, it does not make you whole. Paying the tax leaves you with the rest of your gain; a well that doesn’t produce can leave you with the deduction and little else. Size this against a portfolio, never against a hope.
The sliders show the law. Your complete plan — exact bracket math, state treatment, AMT check, income projections, and the well-by-well model — we share only with investors who confirm they qualify as accredited, because this offering is open only to accredited investors. (Formal verification happens before any investment, per SEC Rule 506(c).)
Confirm Accreditation & Get My Full Plan »The 1031 exchange crowd will tell you to roll the gain into another property. Here's the honest comparison.
In fairness — and you will hear this from any good CPA, so you should hear it from us first: the replacement property can be borrowed against, the deferral can become permanent if the property is held until death and heirs take a stepped-up basis, and real estate does not usually put 100% of your principal at risk the way a single well can. A drilling deduction is not a strictly better instrument; it is a different one, and it is the only one of the two that works on a business sale.
A deduction on a bad well is just a smaller loss. That's why we built Kingdom Scout™ — an engine that re-screens 2.3 million American wells and 88 million production records every night, grades every active oil county A–F, and tracks where the majors are permitting before we commit a dollar. Our geologist and landman go in only after the data says go. Watch the machine work on live data →
Drilling is speculative: wells can underperform or fail, and you can lose the entire investment — a deduction softens that, it doesn't erase it. Timing matters: the year-one deduction requires costs incurred and drilling underway per program terms. Previously deducted IDC can be recaptured as ordinary income if you later sell the interest (IRC §1254). Deductions may be limited by basis, at-risk (§465), excess-business-loss (§461(l)), and AMT rules. This strategy belongs in a plan built with your CPA — we'll happily get on the phone with them.
The deduction lands in the tax year the drilling costs are incurred — so the well has to be spudding, not just funded, inside that year. Programs fill and rigs get scheduled months ahead of that, which is why this conversation belongs in the third quarter and why a call on December 28 usually has nowhere to go. Sixty seconds to qualify, no commitment — and your full offset plan on a private briefing call.
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