If you’re thinking about investing in oil then you need to learn these secret oil and gas tax deductions that can be a huge benefit. Read more about why invest in oil and gas if you haven’t made up your mind on investing yet.
In this fast paced world, oil is a primary necessity many people use in their daily lifestyle. There are several oil companies that are toughly competing with each other in the market. Meanwhile, apart from the hard competition, there are advantages if you will invest on oil and gas. Once you have decided to invest in the oil industry, you will benefit from oil and gas tax deductions.
In the industry, oil and gas tax deductions are present, thus the government wants to boost the production of energy resources. Since the latter elements are very important to growing the economic status of a country, the high authority had come up to the solution of giving some benefits to investors when it comes to the energy production.
To mention a few, the following are some of the options in oil and gas investment tax deductions.
Options for Oil and Gas Tax Deductions
- Deductions for intangible drilling costs. Oil well drilling can cost up to 65-80%, therefore, deductions in this options can really help the investor to save more amount of money. This cost involves the labor, supplies, mud drilling, chemicals, supplies, as well as the fracking process.
- Deductions for tangible drilling costs. This type of cost includes the equipment used in the drilling process. The good thing about this is that the investor will surely enjoy the 100% deduction in these costs.
- Least cost deductions. In this category, the cost includes the administrative expenses, accounting costs, as well as the lease operating expenses that are related to the acquisition of leasing and mineral rights.
- Depletion allowance for small producers. In this category of tax exemption, the investors can have the chance to save more amount of money of gross income coming from oil and gas wells investment. As a result, the investors can now be free from tax payment of about 15%.
- Passive and active income deductions. Based on the Tax Reform Act of 1986, the taxpayer is free from offsetting losses from passive income against active income. In this tax deduction, the cost can be deducted against capital gains, salary, interest income, business income as well as other active income sources.
- Alternative minimum tax. Investors in this category can be exempted from any excess intangible drilling, development costs and deductions for depletion.
- Tax advantages for marginal wells. The US Senate and House of representatives have passed and formulated a bill that contributes tax credits for a maximum of $9 per day, per well for marginal oil as well as natural gas wells. These wells range from about 10 % of gas and 25% of crude oil that is produced in the country.
- 1031 exchanges. In this option, you can be able to get more from your oil and natural gas investment. Thus, this exemption can help you to freely sell a specific business or real estate property investment while enjoying tax advantages. Additionally, you can enjoy the great tax advantage in the market while earning extra amount of money.
- Enhanced recovery credit. Oil exploration may be a difficult and time consuming process. In connection to this, the government has decided to reward a 15% credit. Meanwhile, there are also some limits in this exemption. This limit includes the small producer limit wherein tax advantages from oil and gas investment can be applicable to even the richest investors in the industry.
If you are planning to invest in oil and natural gas, you can enjoy one of the above mentioned oil and gas tax deductions. Find out more about how to invest in oil well production or request a free consultation with an oil well investment expert.