There is an exciting opportunity for natural gas well owners who held an operating interest in a qualified marginal well during 2021.
The IRS finalized and released the natural gas reference price used to compute the Marginal Well Credit for the 2021 tax year with the issuance of Notice 2022-18 on May 2, 2022. Eligible taxpayers can receive a credit of $0.67 per qualified MCF produced during the year.
To qualify for the Marginal Well Credit, a well must be a marginally producing domestic well under the percentage depletion rules, which is 15 barrels of oil equivalent per day (90 mcf or less per day). This presents a significant tax savings strategy for owners of qualified stripper wells because the potential credit could be as much as $4,401.90 in tax savings per qualified well. Note, there is no limit on the number of qualified wells any one taxpayer can use to determine their credit.
The marginal well credit is part of the general business credit and cannot offset tax liabilities generated from the alternative minimum tax, and any unused credit can be carried back five years and carried forward 20 years.
If you think you could benefit from the credit or would like to discuss the 2021 Marginal Well Credit, please contact a Schneider Downs tax advisor.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.