Sponsors (11)
The bill gives meaningful, inflation-protected tax relief to small and marginal oil and gas producers while reducing federal revenue, tilting incentives toward fossil fuel production and adding tax-administration complexity.
Small oil and gas producers and operators of marginal wells get larger depletion tax breaks — a higher percentage depletion (up to 25%) plus a doubled per-well depletable quantity — lowering their taxable income and reducing tax bills.
Energy producers benefit from indexing the $70 baseline to the Producer Price Index for drilling (after 2027), which preserves the real value of the depletion formula against inflation and prevents gradual erosion of the tax benefit.
All taxpayers face lower federal revenue because larger depletion deductions expand tax expenditures, which could increase the budget deficit or reduce funding available for other federal programs.
Energy workers and the public may see stronger incentives for continued fossil fuel production, since enhanced tax benefits make marginal oil and gas extraction more economical, potentially slowing investment in cleaner energy and increasing emissions.
Taxpayers and financial institutions will face added complexity and administrative burdens because depletion calculations become tied to commodity-price references and PPI indexing, requiring new computations and raising potential for disputes with the IRS.
Based on analysis of 2 sections of legislative text.
Increases and indexes percentage depletion for marginal oil and gas properties, exempts that depletion from certain taxable-income limits, and raises the depletable oil quantity threshold to 2,000 barrels.
Official title: To amend the Internal Revenue Code of 1986 to modify certain percentage depletion rules with respect to oil and gas wells.
Introduced March 20, 2026 by Tracey Mann · Last progress March 20, 2026
Increases and indexes tax depletion benefits for small or "marginal" oil and gas properties, raising the percentage depletion rate formula, exempting that depletion from certain taxable-income limits, and doubling the minimum depletable oil quantity for a property. The changes apply to taxable years beginning after December 31, 2026 and add automatic inflation indexing to the $70 baseline after 2027. The effect is to increase after-tax cash flow for small oil and gas producers and make marginal well depletion more generous and responsive to oil prices and inflation.