* Oil & Gas Working Interest - Recapture of Intangible Drilling Costs *
Client is considering investing in an oil & gas working interest. I do knot know if he would receive a 1099 or if it would be reported to him on a K-1. Does this matter?
From what I have researched, he can expense intangible drilling costs rather than capitalize them. He REALLY likes this idea since he is looking at a year with high income. However, it appears he'll be subject to recapture of these costs at ordinary rates in the future.
For a working interest, wouldn't the well be abandoned if it were dry or eventually became unproductive years later? If so, do you still have recapture with a working interest "sale" of $0?
I need to advise my client. Up front it appears to be a good deal tax-wise, but I am worried about years down the road. I appreciate anyone's response who is experienced in this area. (I don't need advice about the riskiness of the investment -- we know the well could be dry.) Thanks!!