With this type of investment, you are entitled to a write-off of up to 80 percent of IDCs (intangible drilling costs) against ordinary income in the first year. Tangible drilling costs can be depreciated over 5 to 7 years. Investors in oil and gas projects can benefit from a depletion allowance of 15 percent of gross income from the project. The depletion allowance is provided for reduction of reserves as oil and gas are produced. Once debt is in place, investors receive passive losses that can offset passive gains.*
Please read the PPM in its entirety including risk factors. Consult your tax advisors.
Tax Benefits Worksheet
|Estimated Adjusted Gross Income||$500,000||$||Line 1|
|Amount of Investment||$200,000||$||Line 2|
|Multiply Line 2 by 80% Estimated intangible drilling cost (IDC) amount||$160,000||$||Line 3|
|Multiply Line 2 by 5% Estimated tangible equipment cost amount||$10,000||$||Line 4|
|Add Line 3 and Line 4 Estimated 1st year active tax deduction||$170,000||$||Line 5|
|Enter the Federal Income Tax Rate plus State and Local Tax Rates Federal maximum tax bracket is 37.0%||47.0%*||%||Line 6|
|Multiply Line 5 by Line 6 Equals first year tax savings||$79,900||$||Line 7|
|Subtract Line 7 from Line 2 Net investment cost due to tax savings||$120,100||$||Line 8|
|Enter Line 1 Estimated Adjusted Gross Income without investment||$500,000||$||Line 9|
|Enter Line 5 Estimated 1st year active tax deduction||$170,000||$||Line 10|
|Subtract Line 10 from Line 9 Estimated Adjusted Gross Income with investment||$330,000||$||Line 11|
The Tax Benefits information and Tax Benefits Worksheet are not forecasts or projections. They merely provide, on a hypothetical basis, potential tax savings. The tax benefit of oil and gas exploration do not eliminate the risks. Please review the Certain U.S. Federal Income Tax Considerations section of the Howard County Energy Fund LP Confidential Private Placement Memorandum.
*Includes assumed state and local tax rate 10%