This bill modifies tax deductions for small oil and gas producers by increasing percentage depletion allowances on marginal oil and gas wells. Specifically, it raises the depletion rate from a base of 15 percent up to a maximum of 25 percent depending on crude oil prices, with the rate increasing by one percentage point for each dollar that oil prices fall below $70 per barrel. The bill also doubles the threshold for defining a "marginal" well from 1,000 barrels to 2,000 barrels of daily production and removes certain income limitations that previously restricted these deductions. The changes are designed to help small independent oil and gas producers, particularly in rural areas, by making their operations more profitable through increased tax benefits. The bill takes effect for tax years beginning after December 31, 2026, and includes an automatic inflation adjustment mechanism that will increase the $70 price threshold annually based on drilling cost inflation.
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