Working Interest in Oil & Gas

Case Study

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Oil and gas working interest investing is one of the few places where Congress deliberately built a large, permanent tax benefit for exactly the kind of income that retirees have. A direct working interest in a drilling program can generate a first year NON-PASSIVE loss that flows directly against your pension income, Social Security income and RMD income.

The flow-thru loss can also be used as an offset for Roth IRA Conversion income as will be demonstrated inside of the case study.

After the initial drilling phase, a producing well can generate ongoing income that comes with a special 15% depletion allowance (a permanent tax savings) for years or even decades to come.

To be clear:

This is a speculative investment in a volatile commodity sector. Wells can be dry. Prices fluctuate. Operators vary widely in quality. The structure of these investments may subject you to personal liability that insurance may be unable to mitigate.

This presentation by Justin from Number Crunch Nerds is NOT a sales pitch to invest in anything. If this type of investment interests you, it is up to you (in combination with your financial advisor and/or attorney) to identify and perform the necessary due diligence on any and all opportunities that may be available to you.

The presentation herein is a deep-dive example of the tax implications of this type of investment. We will take a long, hard look at how this type of investment is structured, how the cash moves and analyze the tax results inside of the Personal Tax Planning Template.

What you will learn:

  • What a "Working Interest" investment actually is

  • Why the "big first year loss" that everybody wants, is not a passive loss

  • How to offset your retirement income with the flow-thru losses

  • What Intangible Drilling Costs are & the tax treatment associated with them

  • What Tangible Drilling Costs are & the tax treatment associated with them

  • The General Partner to Limited Partner conversion that will occur during this process

  • How Production Income works and why it is not subject to NIIT

  • How the 15% Percentage Depletion allowance works and how it benefits you

  • What a K-1 is and how your share of income and deduction will be reported

In addition, we will work through a 10-year numerical starting from the drilling phase and going into production and we will compare the after-tax cash flow results both pre and post investment.

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Number Crunch Nerds | 2026

justin@numbercrunchnerds.com