IRS Announces 2020 Marginal Well Credit

With the issuance of IRS Notice 2021-34, natural gas well owners holding an operating interest in a qualified marginal well during 2020 are eligible to claim a $0.66 credit per qualified MCF. The IRS finalized and released the reference price used to compute the Marginal Well Credit for the 2020 tax on June 7, 2021.

This is a significant opportunity for gas producers that own interests in qualified stripper wells because the credit could provide as much as $4,336.20 in tax savings per qualified well. (There is no limit on the amount of qualified wells taxpayers can use to determine their credit.)

As previously indicated in a prior post (2020 Credit Available for Natural Gas Producers), the marginal well credit is a production-based tax credit for marginal domestic wells that have marginal production under percentage depletion rules, which is 15 barrels of oil equivalent per day (90 mcf or less per day).

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 2020 Marginal Well Credit, please contact a Schneider Downs tax advisor.