The U.S. Tax Code provides specific incentives to encourage private investment in domestic energy production — making direct oil and gas participation one of the most tax-advantaged investment classes available.
This page is for educational purposes only and does not constitute tax advice. Consult your tax advisor.*
These are not loopholes — they are deliberate incentives enacted by Congress to reduce American dependence on foreign energy and encourage private capital into domestic drilling and production. Unlike most investments, direct participation in oil and gas may allow investors to deduct a significant portion of their investment in the year the capital is deployed.*
The intangible expenditures of drilling — labor, chemicals, mud, grease, hauling, and other non-salvageable items — typically represent 65–80% of the total cost of a well.*
These costs may be 100% deductible in the year incurred, even if the well does not begin drilling until March 31 of the following year.*
Reference: IRC Section 263(c)
*Hypothetical illustration based on a 32% federal tax bracket. Actual IDC percentages vary by project. Figures exclude land costs and offering fees. This does not represent a guaranteed tax outcome. Consult your tax advisor.
The portion allocated to physical equipment — wellheads, casing, pumps, and other salvageable items — is now eligible for 100% bonus depreciation in Year 1 under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025.*
Previously, TDC was depreciated over 7 years using MACRS. Under the OBBBA, 100% bonus depreciation is now permanent for qualified property acquired after January 19, 2025 — meaning the full TDC amount can now be deducted in the same year as IDC.*
Combined with IDC, this means up to 100% of invested capital into the well may be deductible in Year 1.*
Reference: IRC Section 168(k) as amended by OBBBA; IRC Section 263(c)
*Hypothetical illustration based on a 32% federal tax bracket and 100% bonus depreciation under the One Big Beautiful Bill Act (OBBBA). Figures exclude land costs and offering fees. Depreciation amounts vary by project. Consult your tax advisor.
The "Percentage Depletion Allowance" allows qualifying investors to exclude 15% of gross income (not net income) from oil and gas production from federal taxation — every year, for the life of the well.*
Not available to large oil companies, retail petroleum marketers, refiners processing 50,000+ barrels/day, or entities exceeding 1,000 barrels of oil or 6,000,000 cubic feet of gas average daily production.
Reference: IRC Section 613A
*Hypothetical illustration. Continues for the producing life of the well. Subject to eligibility requirements. Consult your tax advisor.
The Tax Reform Act of 1986 established that working interests in oil and gas are not classified as passive activity. This is one of the few investment classes where deductions may directly offset active income.*
This means oil and gas deductions may be used to offset salary, business income, professional fees, dividends, interest, and other forms of active and portfolio income.*
Reference: IRC Section 469(c)(3)
*Hypothetical illustration based on a 32% federal tax bracket ($191,951–$243,725 for single filers; $383,901–$487,450 for married filing jointly in 2025). This example assumes $100,000 invested capital into the well with 80% IDC and 20% TDC under 100% bonus depreciation. Figures exclude land costs and offering fees. Unlike most partnerships or real estate, oil & gas working interest deductions are not subject to passive activity limitations. Individual results vary. Consult your tax advisor.
Beyond the primary benefits, oil and gas investors may also take advantage of these deductions.*
Ongoing well operating expenses — maintenance, workovers, field costs — are generally 100% deductible in the year incurred as ordinary business expenses.*
Costs for acquiring leases, mineral rights, legal fees, administrative costs, and accounting are generally 100% deductible through cost depletion.*
For investments made after 1992, IDC deductions are generally not treated as a tax preference item for purposes of the Alternative Minimum Tax (AMT).*
Our drilling programs are structured as Limited Partnerships (LP) and our SWD facilities as LLCs, giving investors direct economic participation. These structures are designed to pass through tax benefits — including IDC, TDC, depletion, and operating expense deductions — directly to investors on their K-1s.*
Investments made before December 31 may qualify for IDC deductions in that same tax year, provided the well spuds by March 31 of the following year. This makes Q4 a strategic window for high-income investors looking to reduce their current-year tax obligation.*
Each investor receives a Schedule K-1 (Form 1065) reflecting their share of income, losses, deductions, and credits for the tax year — ready for your tax professional to incorporate into your return.
LegacyCrest structures each offering to maximize available deductions under current IRS guidelines while maintaining full compliance with federal securities regulations. Every offering includes detailed tax information in its offering documents.*
*All figures, percentages, and examples on this page are hypothetical illustrations only based on a 32% federal tax bracket. They do not represent actual or guaranteed tax outcomes. All hypothetical calculations reflect invested capital into the well only and exclude land acquisition costs and offering fees. The applicability and effect of tax benefits depend entirely on each investor's individual circumstances, including but not limited to income level, filing status, existing deductions, and state tax laws.
The information on this page is provided for general educational purposes only and should not be construed as tax, legal, or accounting advice from LegacyCrest Capital, LLC, or any of its affiliates, officers, or employees. Tax laws are complex and subject to change at any time without notice.
Prospective investors are strongly urged to consult with their own personal tax advisor, CPA, or attorney regarding the applicability and effect of U.S. federal, state, local, and foreign tax laws on their individual tax situation before making any investment decision. No representation or warranty is made regarding the accuracy or completeness of this information. Past tax treatment is not indicative of future tax treatment.
Common questions from accredited investors evaluating oil and gas direct participation opportunities.
A direct participation program (DPP) is an investment structure that allows accredited investors to hold working interest ownership directly in oil and gas wells or midstream infrastructure — rather than buying shares of an energy company on the stock market. Investors participate in the actual economics of the project: they receive their proportional share of production revenue and, importantly, all associated tax deductions — including intangible drilling costs, equipment depreciation, and depletion allowances — flow through directly on a Schedule K-1. This is fundamentally different from owning energy stocks, ETFs, or mutual funds, which do not pass through these tax benefits. LegacyCrest Capital structures its drilling programs as Limited Partnerships and its salt water disposal investments as LLCs, both designed to give investors direct economic participation and maximum tax efficiency.
Oil and gas direct participation programs offer some of the most favorable tax treatment in the U.S. tax code. Intangible drilling costs (IDC) — which typically represent 65–80% of total well cost — may be 100% deductible in the year incurred under IRC Section 263(c). Under the One Big Beautiful Bill Act (OBBBA), tangible drilling equipment now qualifies for 100% bonus depreciation in Year 1 — replacing the prior 7-year MACRS schedule — meaning the full tangible cost can be deducted in the same tax year as the IDC. The percentage depletion allowance under IRC Section 613A allows qualifying investors to exclude 15% of gross production income from federal taxation annually. And unlike most alternative investments, working interests in oil and gas are not classified as passive activity under IRC Section 469(c)(3) — meaning these deductions may offset W-2 wages, business income, and professional fees. Consult your tax advisor regarding your specific situation.
A working interest gives the investor direct ownership participation in the well's operations and production. Working interest holders share in both revenue and costs, but receive the full suite of tax deductions — including IDC, TDC, depletion, and operating expense write-offs — and their income is treated as active (non-passive) under the tax code. A royalty interest entitles the holder to a percentage of production revenue with no exposure to operating costs, but offers fewer tax advantages and no active income treatment. LegacyCrest structures its drilling programs so that investors hold direct working interest, providing both economic upside and maximum tax efficiency.
Every barrel of oil produced in the Permian Basin generates multiple barrels of produced water that must be safely disposed of by injection into approved subsurface formations. Salt water disposal (SWD) facilities collect fees for each barrel of water processed, creating a steady, volume-based revenue stream. SWD investments offer lower commodity price sensitivity than drilling programs because revenue is driven by water volume rather than oil price, and produced water volumes remain relatively stable even during commodity downturns.
Key factors include: whether management has a track record of co-investing their own capital alongside investors (alignment of interest); whether the firm provides third-party engineering reports and reserve analysis; the structure of the offering (direct participation vs. blind pool fund); geographical focus and operator track record; transparency of financial reporting and communication frequency; and whether the company has verifiable production history. At LegacyCrest, our founder has personally invested alongside our LPs and intends to continue doing so when possible. We provide comprehensive engineering analysis for each project, and investors receive direct participation in each project — not diluted exposure through intermediary vehicles.
Oil and gas investments carry significant risks that investors should understand before participating. These include commodity price volatility — oil and gas prices fluctuate based on global supply and demand, OPEC+ decisions, and geopolitical factors. Drilling risk — even in proven formations, individual wells may underperform geological projections or encounter mechanical issues. Regulatory risk — environmental regulations and permitting requirements can change. Liquidity risk — direct participation programs are illiquid and typically cannot be easily sold on a secondary market. Production decline — all wells experience natural decline curves over time. Investors should review the Private Placement Memorandum (PPM) thoroughly and consult with their financial advisor before investing.
As a direct participant in an oil and gas Limited Partnership or LLC, investors receive a Schedule K-1 rather than a 1099. The K-1 reports the investor's allocable share of income, deductions, and credits — including intangible drilling costs, tangible drilling cost depreciation, percentage depletion, lease operating expenses, and production revenue. Because oil and gas working interests receive active income treatment under IRC Section 469(c)(3), these deductions can typically be applied against the investor's ordinary income on their personal tax return. K-1s are issued annually and should be reviewed with your CPA or tax advisor.
Minimum investment amounts vary by offering and are detailed in each project's Private Placement Memorandum (PPM). LegacyCrest offerings are available exclusively to accredited investors as defined by the SEC — individuals with net worth exceeding $1 million (excluding primary residence) or annual income exceeding $200,000 ($300,000 with spouse). The first step is a brief introductory call with our team to discuss your investment goals and current tax situation. Schedule a call to learn more about current opportunities.
In a typical oil and gas fund or energy REIT, your capital is pooled into a "blind pool" where the fund manager decides how and where to allocate it — often across dozens of projects you never see. In a direct participation program like those offered by LegacyCrest, investors know exactly which wells and facilities their capital is deployed into before they commit. You hold direct working interest in specific assets, receive itemized tax deductions on your K-1, and have visibility into the operational performance of your investment. This transparency and specificity is a core reason high-net-worth investors and their advisors prefer direct participation structures for oil and gas exposure.
High-income professionals — including physicians, attorneys, business owners, and executives — are often drawn to oil and gas direct participation programs because of the ability to deduct intangible drilling costs against their active income in the year of investment. For someone with significant W-2 or 1099 income, this can create a meaningful reduction in current-year tax liability while building a position in a tangible, income-producing asset. The combination of potential cash flow from production, year-one tax deductions, and ongoing depletion allowances makes oil and gas one of the few investment categories that addresses both income generation and tax efficiency simultaneously.
Schedule a confidential call to discuss how oil and gas investment structures may complement your tax planning.