Sponsors (8)
The bill gives targeted tax relief and inflation-protected benefits to small oil and gas producers—supporting local energy-sector cash flow and jobs—while reducing federal revenue, adding administrative complexity, and likely modestly favoring continued fossil fuel production over cleaner alternatives.
Small independent oil and gas producers and operators of marginal wells will face lower federal income tax bills and improved cash flow because the bill raises the percentage depletion allowance (up to 25%), doubles the per-well depletable quantity (from 1,000 to 2,000 barrels), and indexes the baseline to the drilling Producer Price Index after 2027, preserving the real value of depletion-related
Owners and workers in energy-producing communities will see improved viability of marginal wells and related local economic activity as those smaller operations become more financially workable due to larger and inflation-protected depletion deductions.
All taxpayers could be affected because larger depletion deductions reduce federal tax revenue and expand tax expenditures, potentially increasing the deficit or crowding out other federal spending priorities.
The change favors continued fossil fuel extraction by improving the economics of marginal oil and gas production, which could slow investment in cleaner energy and increase long-term environmental and climate harms.
Taxpayers, financial institutions, and the IRS will face added administrative complexity and potential disputes because depletion calculations are linked to commodity prices and indexed to the PPI, requiring new computations and oversight.
Based on analysis of 2 sections of legislative text.
Raises percentage depletion benefits for marginal oil and gas wells (15% base plus oil-price linkage up to 25%), indexes the $70 baseline after 2027, exempts certain taxable-income limits, and doubles depletable barrels to 2,000.
Introduced March 20, 2026 by Tracey Mann · Last progress March 20, 2026
Changes to federal percentage depletion rules would raise tax depletion benefits for certain small or marginal oil and gas wells. The bill sets a new “applicable percentage” for marginal properties starting at 15% and increasing with a formula tied to the previous year’s crude oil reference price (capped at 25%), indexes the $70 baseline for later years, exempts these depletion amounts from some taxable-income limits, and raises the depletable oil quantity threshold from 1,000 to 2,000 barrels. The changes apply to tax years beginning after December 31, 2026.