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Knowledge is a great equalizer.

How will tax reform affect my oil & gas income?

Since the passage of The Tax Cuts and Jobs Act (H.R. 1 – 115th Congress), clients have asked me about the effect of the new tax law on their oil & gas income. Tax reform contains several provisions of interest from the mineral/royalty owner’s perspective. Most notably, the existing valuable deductions for depletion are left intact and a new limit on state and local taxes will not directly effect oil & gas income. Although I am an attorney, this article is not legal or financial advice. Consult a professional about your particular situation. I aim to provide a basic overview of some provisions of interest to mineral owners for informational purposes only.

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Patrick Flueckiger
Cost Depletion: A Valuable Tax Deduction for Royalty Owners

The Internal Revenue Code allows a deduction known as “depletion” for oil & gas income. The depletion deduction could save a taxpayer thousands of dollars in income taxes. Since a mineral interest runs out eventually (depletes), the tax code allows the taxpayer to take a deduction to recoup the taxpayer’s investment in the property. The rationale behind this deduction is that, as an owner receives income from a producing mineral interest, the value of that interest diminishes (because there is less oil left after each unit produced). Therefore, the tax code treats this income as a “loss" of the mineral property itself, since the minerals are converted to cash through production. The loss in the mineral interest’s value during production can offset the income from production. The objective of this article is to inform recipients of oil & gas income about their potential eligibility for depletion.

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Patrick Flueckiger
First Post

Hello and thank you for visiting the site.

This is the first post to this blog. The future posts are intended to become a resource for owners of Texas oil, gas, land and mineral interests. Over the coming weeks, new content will be added regularly. 

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Patrick Flueckiger