An illustration
What the first-year tax effect can look like, in numbers.
A New York resident with $700,000 of ordinary income who deploys $300,000 into a working-interest well. Change the figures.
Illustrated first-year effect
$112,433
Combined federal, New York State, and New York City income tax against the income and investment entered. That is 37% of the connected investment in this illustration.
- Federal taxable income, before
- $683,900
- Federal taxable income, after
- $427,900
- Current-year deduction used
- $256,000
- §461(l) amount carried as NOL
- $44,000
The illustration treats wages as ordinary income, subtracts the 2026 federal standard deduction, and expenses the connected investment in the year it is spent, subject to the §461(l) excess-business-loss threshold ($256,000 for this filing status). Year-one production, if entered, increases that threshold. State figures use published 2025–2026 rate schedules. New York does not conform to federal bonus depreciation; only the intangible share reduces New York (and New York City) taxable income here. Alternative minimum tax, itemized deductions, the SALT cap, at-risk and basis rules, and later-year depletion or income from the well are omitted. Historical results are not a prediction. This is not tax advice and not an offer to sell a security.