07 May 3 Major Tax Benefits of Oil and Gas Investing
Direct Oil and Gas Investing offers Powerful Tax Benefits to Investors.
Here are 3 Big Benefits of Oil and Gas Investing.
INTANGIBLE DRILLING COST TAX DEDUCTION
The intangible expenditures of drilling (labor, chemicals, mud, etc.) are usually about (65-80%) of the cost of a well. These expenditures are considered “intangible drilling costs (IDC)s”, which is 100% deductible during the first year. For example, a $100,000 investment would yield up to $75,000 in tax deductions during the first year of the venture. These deductions are available in the year the money was invested, even if the well does not start drilling until march 31st of the year following the contribution of capital. (see Section 263 of the Tax code.)
TANGIBLE DRILLING COST DEDUCTION
The total amount of the investment allocated to the equipment “tangible Drilling Cost’s (TDC)” is 100% tax deductible. In the example above, the remaining tangible costs ($25,000) may be deducted as depreciation over a seven year period. (see Section 263 of the Tax Code)
A benefit implemented to help support smaller oil companies and direct investors, the 1990 Tax Act allows certain entities to exempt 15 percent of their gross income from federal taxes. This exemption applies only to companies that produce no more than 50,000 barrels per day of oil or other entities that produce no more than 1,000 barrels of oil per day or 6 million cubic feet per day of gas.
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