In an effort to bolster oil and natural gas production here at home, the IRS has established substantial and unprecedented tax codes that provide incentives to investors and small producers of private-source domestic projects. Direct participation oil and natural gas investments are not only helping to diminish our country’s dependence on foreign oil, but, at the same time, also providing incredible financial gains to investors.
- Small Producer Depletion Allowance
- Tangible & Intangible Drilling Costs
- Lease Costs 100% Tax Deductible
- No Income or Net Worth Limitations
- Alternative Minimum Tax
- Investment Option Determines Taxation
There are tremendous tax benefits for oil and gas investors today. Oil and gas prices are at the lowest they’ve been in decades and the U.S. government is attempting to reduce our country’s dependence on foreign oil. Increased domestic drilling to increase our own oil reserves is necessary to make this happen and the administration is taking steps to stimulate that action. The federal government’s approach to making this happen is not with huge oil giants, instead, it is resting largely on many small-scale, private-source oil and gas ventures.
Congress has offered up oil and gas investors and small producers (companies producing below 50,000 barrels a day) some of the most attractive tax incentives available in the U.S. tax code today, something that is unmatched in any other industry. With these substantial tax breaks oil and gas investing has never looked better.
Tax Benefits for Oil and Gas Investors
One of the best tax advantages made available to small producers and their investors is thanks to the Enhanced Oil Recovery Credit, the percentage depletion allowance. This deduction, which is available only for those with domestic oil and gas holdings, allows for 15 percent of all gross income from oil and gas wells to be excluded from taxation. Small producers and investors are allowed to claim the deduction for as long as their oil or gas well is generating income.
Another tax benefit is tangible drilling cost deductions. The total amount of actual dollars spent on the investment that were allocated to the equipment is 100-percent tax deductible and may be deducted as depreciation over a seven-year period.
Also, costs incurred that include just about everything on a project but the actual drilling equipment, such as labor, supplies, and other items necessary for drilling are considered intangible. These intangible drilling cost deductions, which usually eat up about 80-percent of the total cost of drilling a well, are allowed to be taken at 100-percent as well, but only during the year incurred.
Many of the administrative and operational costs including administrative, accounting, sales, legal, lease costs and lease operating are all 100-percent tax deductible, as well.
These are just a few of the examples of the tremendous tax benefits available to oil and natural gas investors today. This type of tax shelter means that an investment in oil and natural gas today is not only a smart strategy for any investor looking for security in investing for the immediate future but it also provides a safety net for financial stability long-term.
This type of tax shelter means that an investment in oil and natural gas today is not only a smart strategy for any investor looking for security in investing for the immediate future but it also provides a safety net for financial stability long-term.