What are Tangible drilling costs?
Tangible drilling costs represent the physical equipment and permanent improvements necessary for oil and gas extraction operations, including wellhead equipment, casing materials, pumping units, and storage facilities. Unlike intangible drilling costs, which are immediately deductible, tangible costs qualify for accelerated seven-year depreciation under the Modified Accelerated Cost Recovery System, typically accounting for 15-35% of the total well investment. First-year depreciation generally ranges from 14% to 20% of tangible costs, depending on timing and applicable bonus depreciation provisions. Depreciation and amortization strategies can maximize these ongoing tax benefits beyond the initial investment year for oil and gas investors seeking to optimize their deduction timing across multiple tax periods.
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