For accredited investors, the Permian Basin offers two things at once: direct participation in America's largest oil-producing region, and a set of federal tax provisions Congress created to encourage private investment in domestic energy.* But which tax benefits you may receive depends on a question most articles skip — are you funding new drilling, or buying into wells that are already producing?
Why Accredited Investors Look at the Permian Basin
The Permian Basin spans West Texas and southeastern New Mexico and is the largest oil-producing region in the United States. Its western sub-basin, the Delaware Basin, runs through counties like Reeves County, Texas, where operators develop stacked formations such as the Wolfcamp with long horizontal wells. Major operators are active across these same areas, which is a large part of why independent operators and private investors target them.
LegacyCrest Capital focuses on the Permian Basin & Delaware Basin, offering accredited investors direct participation in horizontal wells and salt water disposal (SWD) infrastructure.
The Four Oil & Gas Tax Provisions, in Brief
Direct participation in oil and gas may give investors access to tax treatment that most other asset classes don't offer.* Here is a short summary. Our Tax Benefits page walks through each one with hypothetical examples.
- Intangible Drilling Costs (IDC) — IRC §263(c). Labor, fuel, drilling fluids, and site preparation typically make up 65–80% of a new well's cost, and may be deductible in the year incurred.*
- Tangible equipment depreciation — IRC §168(k). Under the One Big Beautiful Bill Act, 100% bonus depreciation is permanent for qualified property acquired after January 19, 2025. Casing, wellheads, and production equipment may qualify.*
- Percentage depletion — IRC §613A. Qualifying investors may exclude up to 15% of gross production income from federal taxable income, for the producing life of the well.*
- Active income treatment — IRC §469(c)(3). A working interest held in a way that does not limit the investor's liability is not a passive activity, so losses may offset W-2 and business income. Interests held through structures that limit liability, such as limited partnership units, may not qualify — which is why some programs admit investors as general partners first.*
New Drilling vs. Producing Wells: The Tax Picture Changes
Most oil and gas tax content assumes you're funding a well before it's drilled. That's where the large first-year IDC deduction comes from. When you buy into wells that are already drilled and producing, the tax profile looks different — and so does the risk profile.
| Funding New Drilling | Buying Into Producing Wells | |
|---|---|---|
| IDC deduction | May be available — often the largest first-year item* | Generally not available — drilling costs were incurred by whoever funded the drilling |
| Equipment depreciation | Tangible drilling costs may qualify for 100% bonus depreciation* | The portion of the purchase price allocated to equipment may qualify for bonus depreciation* |
| Depletion | 15% percentage depletion may apply once production starts* | May apply from day one — percentage depletion or cost depletion, whichever is greater* |
| W-2 / active income offset | Depends on how the interest is held* | Depends on how the interest is held* |
| Drilling & completion risk | Still ahead | Behind you |
| Production timing | Months of drilling and completion before first production | Wells are already online — revenue still depends on production volumes and commodity prices |
New drilling front-loads the deductions. Producing wells trade the large first-year write-off for a head start on production — with the drilling risk already behind them.
Neither approach is better for every investor. An investor with a large tax bill this year may lean toward drilling programs. An investor who wants to avoid drilling risk may prefer producing wells. Many investors hold both over time. Your CPA can tell you which fits your situation.
Where Legacy Gus-EFG II Fits
LegacyCrest investors first participated in four horizontal Wolfcamp wells in Reeves County, Texas through Legacy Gus-EFG LP. All four wells were drilled, completed, and brought online, and that offering is now closed.
LegacyCrest has since acquired an additional working interest in those same four wells. That interest is offered to verified accredited investors through Legacy Gus-EFG II, LP, a Reg D Rule 506(c) offering.
Legacy Gus-EFG II, LP
Gus-EFG II investors may still have access to other tax benefits: bonus depreciation on the equipment portion of the investment, the 15% depletion allowance, and ongoing operating deductions.* IDC deductions don't apply because the wells are already drilled — which also means the drilling risk is behind us.
Investors come in as general partners, holding the working interest without limited liability. That structure is what may allow early-year losses to offset W-2 and business income under IRC §469(c)(3).* Once the wells are flowing, the partnership converts to a limited partnership. As general partners, investors take on more liability until that conversion — the offering documents explain the details.
View the OfferingBeyond Wells: Salt Water Disposal (SWD)
Every barrel of Permian oil comes with multiple barrels of produced water that must be disposed of. Salt water disposal facilities earn fees per barrel from area operators, and many recover skim oil as a second revenue stream. LegacyCrest holds SWD facilities in Reeves County, and SWD programs are the other half of our investment focus.
SWD assets have a different tax profile than producing wells, so review them with your advisor separately. Read more in our salt water disposal market outlook.
Who Can Invest
LegacyCrest offerings are made under Reg D Rule 506(c) and are open only to accredited investors. Under 506(c), we are required to verify accredited status before accepting an investment — typically through a verification letter from your CPA, attorney, or registered investment adviser.
Five Questions to Ask Before You Invest
- Is this new drilling or an interest in producing wells? The answer changes which deductions may be available.
- How is my interest held? This determines whether losses may offset active income.
- Who operates the wells, and what else are they drilling nearby?
- How is the purchase price allocated between equipment and leasehold? That affects depreciation and depletion.
- What does the offering document say about tax allocations and risks? Read it with your CPA.
Frequently Asked Questions
What tax benefits may be available when investing in Permian Basin oil and gas?
Depending on the deal and the investor, four federal provisions may apply: IDC deductions, bonus depreciation on equipment, the 15% percentage depletion allowance, and non-passive treatment for certain working interests. Which apply depends on the investment's structure and your circumstances.*
Do I get IDC deductions if I invest in wells that are already producing?
Generally no. IDC deductions go to whoever paid the drilling costs. Investors who buy into producing wells typically recover their cost through depreciation and depletion instead.*
What is the 15% depletion allowance?
Under IRC §613A, qualifying independent producers and royalty owners may exclude up to 15% of gross oil and gas production income from federal taxable income, subject to limits. It can apply to both new and existing production.*
Can oil and gas deductions offset W-2 income?
Sometimes. A working interest held in a way that does not limit the investor's liability is not a passive activity under IRC §469(c)(3). Interests held through limited-liability structures, such as LP units, may not qualify. Ask your tax advisor how a specific offering is treated.*
Why do some oil and gas programs start investors as general partners?
Holding a working interest as a general partner means the investor's liability is not limited, which is what allows losses to be treated as non-passive under IRC §469(c)(3). Once the wells are producing, many programs convert the partnership to a limited partnership. The trade-off is greater liability exposure during the general partnership period.*
Who can invest in a Reg D 506(c) oil and gas offering?
Only accredited investors, and the sponsor must verify accredited status — typically through a verification letter from a CPA, attorney, or registered investment adviser.
Bring Your CPA To This One
Schedule a brief call to talk through Legacy Gus-EFG II, our SWD programs, and whether direct participation fits your tax situation.
Schedule a Brief Call*This article is for educational purposes only and is not tax, legal, or investment advice. Tax benefits described may not be available to all investors, depend on individual circumstances and the specific structure of each offering, and are subject to change under current law. Investing in oil and gas involves significant risks, including the potential loss of principal. Past performance does not guarantee future results. Offerings are available only to verified accredited investors and are made only pursuant to applicable offering documents. Consult your CPA or tax advisor before investing.