Oil and Gas Tax Advantages - EnergyFunders
2011
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Oil and Gas Tax Advantages

The best tax advantage you get from oil and gas investing is a lower tax bill in a shorter amount of time. You can legally deduct up to 80% of your investment against your income in the year you make the investment—and up to 100% of it in just five years. I’ll go into more detail in a little bit.

 

Real estate has the reputation as the investment with the best tax advantages. And compared to most other investments, that’s true. However, it takes 27.5 years to get the full tax benefit after you buy a property. That’s because the IRS only allows straight-line depreciation expense every year. That’s the purchase price divided by 27.5 years. The IRS won’t allow multiple years depreciation in one.

Investors in oil and gas projects receive an 80% tax deduction on Intangible Drilling Costs—any cost that can’t be sold later—such as:

 

  •   Drilling Rig Rentals
  •   Cement
  •   Drilling Consultants
  •   Casing Pipe
  •   Stimulating, fracing and acidizing processes
  •   Mud Logs
  •   Geologists
Rig up pic

Tangible Drilling Costs (any asset or expenditure that you could sell later) make up the remaining 20% tax credit, and can be expensed over five years.

 

If you invested $100,000 in an oil well, you can take $80,000 as a tax credit the first year for Intangible Drilling Costs. You can also deduct $4,000 from your income for Tangible Drilling Costs in Years 1-5.

 

The IRS also gives a 15% tax-free depletion allowance against production revenue. That’s to allow for the drop in oil and gas reserves in a well. It’s similar to depreciation expense for real estate. Let’s say this hypothetical well made $50,000 in annual revenue. $50,000 * 15% = another $7,500 credit to lower your taxable income.

 

In summary, it takes 27.5 years to get the full tax benefit from real estate, and just 5 years when you invest in an oil and gas project. You’ll receive a generous tax deduction, and support independent American energy producers.

The main reason for these generous tax deductions is the inherent risk involved in oil and gas investing.

 

Our goal is to reduce that risk with carefully vetted oil and gas projects. We only accept well-managed projects with proven reserves. Each project also has plenty of information so you can make an informed decision.

 

You’ll see the production history, seismic readings and other relevant data. Plus, a you can hear a full recording of a conference call with well operators.

 

All of this information may be a little overwhelming at first. We do this to put “all the cards on the table” when it comes to each project. You can review it at your leisure, and we encourage you to have 3rd-party oil and gas professionals give it a look.

 

To review our portfolio of carefully-vetted projects, just click the button below.

 

Need the details? Click this button to download our book on the tax advantages of oil and gas investing! …or give it to your CPA.