Tax Reporting for Oil and Gas Investors

What tax documents will I receive?

Each year you'll receive the appropriate tax documents for your oil and gas investment. They report your share of income and the items behind your deductions, such as intangible drilling costs, equipment depreciation, and depletion. Your CPA uses them to prepare your return.

What to Look For

In year one of a drilling program, the investment usually shows a net loss because IDC deductions exceed production revenue. In later years, it typically shows positive income. Check that IDCs, equipment costs, and depletion are each accounted for, and ask your CPA whether the Section 199A qualified business income deduction applies.

How your income is treated under Section 469 also matters. For working interest holders outside of limited partnerships, it should be treated as active, which allows losses to offset W-2 income.

Working with Your CPA

Oil and gas tax reporting is more complex than most investments. Not every CPA has experience with IDC elections, depletion calculations, and Section 469 classifications. If your CPA hasn't handled oil and gas investments before, consider working with one who specializes in energy taxation.

Common mistakes: failing to elect to expense IDCs (they must be elected, not automatic in all cases), using cost depletion when percentage depletion would be larger, and misclassifying income as passive when it qualifies as active under the working interest exception.

BassEXP sends supporting documentation with the appropriate tax documents: a summary of tax items, an explanation of significant line items, and contact information for our accounting team if your CPA has questions.