Skip to content
  • About
    • About Us
    • Locations
      • Houston
      • The Woodlands
      • Corpus Christi
  • Services
    • Services Overview
    • Tax Advisory & Preparation
    • Accounting & Compliance
    • Outsourced CFO
    • Other Services
  • Blog
  • Careers
    • Work With Us
    • Partnership Program
Menu
  • About
    • About Us
    • Locations
      • Houston
      • The Woodlands
      • Corpus Christi
  • Services
    • Services Overview
    • Tax Advisory & Preparation
    • Accounting & Compliance
    • Outsourced CFO
    • Other Services
  • Blog
  • Careers
    • Work With Us
    • Partnership Program
GET STARTED

Oil and Gas Tax Deductions

Evans Sternau CPA provides tax advisory services to sophisticated taxpayers to ensure they are receiving all allowable oil and gas tax deductions.

As a CPA with headquarters in Texas, a large majority of our clients have oil and gas investments. There are major oil and gas tax deductions available to investors who are properly advised.

Oil and gas tax deductions information provided by Evans Sternau CPA

Intangible Drilling Costs

Developing an oil and gas well requires a significant amount of cost. These costs are separated into two categories for tax purposes, intangible and tangible. Intangible drilling costs (IDCs) are costs that have no salvage value. Examples of intangible drilling costs include, cost of drilling, administrative costs associated with drilling, costs to construct roads to drill site, and surface damage payments to owners.

The intangible drilling cost is one of the most attractive tax aspects of oil and gas investments. Investors who incur intangible drilling costs are allowed the option to either expense IDCs when incurred or capitalize IDCs and amortize the costs over 60 months. Sophisticated taxpayers should consult with an experienced CPA who can prepare multi-year tax plans to determine if deducting or capitalizing IDCs is best.

Tangible Costs – Lease and Well Equipment

Lease and well equipment are tangible costs that are equipment and facilities used on the lease for the production of oil and gas. These costs are differentiated from IDCs in that tangible costs have a salvageable value.

The tangible costs incurred are capitalized and depreciated over seven years. For the past several years, taxpayers have enjoyed the tax benefits of 100 percent bonus depreciation of lease and well equipment. The bonus depreciation deduction has already begun to phase out and will be fully phased out by 2027.

Similar to IDCs, sophisticated taxpayers should consult with an experienced CPA who can prepare multi-year tax plans to determine if the taxpayer should utilize bonus depreciation or choose to depreciate over seven years.

Depletion

Oil and gas properties are wasting assets and such, taxpayers are entitled to a depletion deduction to recover the cost they paid to acquire the leasehold. There are two methods available for computing depletion, cost depletion and percentage depletion.

The percentage depletion deduction is a deduction based on the revenue of the property. The percentage depletion deduction is 15% of the gross revenue of the property.

The cost depletion deduction is based on a units of production method. In order to receive benefit from cost depletion, the taxpayer must have a basis in the leasehold, know the amount of reserves, and know the amount of oil and gas produced.

An attractive tax benefit of percentage depletion is that is still available after the basis of the property has been fully recovered.

Evans Sternau oil and gas

About The Author

Christopher Sternau, CFP®, CPA 

Partner – Evans Sternau CPA LLC 

CSternau@ES.CPA 

832-482-4240

Christopher Sternau is a Certified Public Accountant and Certified Financial Planner with over a decade of experience providing comprehensive tax and financial planning services to several of the wealthiest families in the United States. He focuses his practice on complex individual and closely held business tax planning and preparation. His clients have business interests in a wide range of industries including oil and gas, mining, real estate, cattle ranching, retail, technology and many others. 

Chris is the founding member of Evans Sternau CPA LLC. Prior to founding Evans Sternau CPA LLC, Chris led the tax department for a family office in Houston, Texas. He also spent several years as a Tax Manager at Andersen. 

About Evans Sternau CPA LLC

Evans Sternau CPA is seeking reform in an industry where responsiveness and availability are the exceptions – not the norm.

Our global network of committed CPAs and accountants’ places proactive thinking at the forefront of our work. With robust service offerings and client support strategies, we are always searching for opportunities to serve your best interests.

While our philosophy is rooted in tried and trusted methods, our execution surpasses the norm and redefines the standard.

Evans Sternau CPA provides proactive tax, accounting, and advisory services for business owners, entrepreneurs, and individuals with complex tax challenges. Evans Sternau CPA is for those that want year-round support, not just during tax season.

Evans Sternau CPA logo (white). To the right of the company name are four symbols that resemble "E" and "S".
  • About
  • Services
  • Careers
  • Call Now
  • Get Started
  • About
  • Services
  • Careers
  • Call Now
  • Get Started
  • About
  • Services
  • Careers
  • Call Now
  • Get Started
  • About
  • Services
  • Careers
  • Call Now
  • Get Started
  • About
    • About Us
    • Locations
      • Houston
      • The Woodlands
      • Corpus Christi
  • Services
    • Services Overview
    • Tax Advisory & Preparation
    • Accounting & Compliance
    • Outsourced CFO
    • Other Services
  • Blog
  • Careers
    • Work With Us
    • Partnership Program
  • About
    • About Us
    • Locations
      • Houston
      • The Woodlands
      • Corpus Christi
  • Services
    • Services Overview
    • Tax Advisory & Preparation
    • Accounting & Compliance
    • Outsourced CFO
    • Other Services
  • Blog
  • Careers
    • Work With Us
    • Partnership Program
Instagram Linkedin Twitter Facebook
832-482-4240
Copyright © 2023 Evans Sternau CPA. All Rights Reserved.
Evans Sternau logo (in color). "Evans" is blue, "Sternau" is yellow – the name is to the left of four symbols that resemble "E" and "S".
  • About
    • About Us
    • Locations
      • Houston
      • The Woodlands
      • Corpus Christi
  • Services
    • Services Overview
    • Tax Advisory & Preparation
    • Accounting & Compliance
    • Outsourced CFO
    • Other Services
  • Blog
  • Careers
    • Work With Us
    • Partnership Program
SCHEDULE A MEETING