Investing in oil wells has incredible tax benefits for investors today. Oil prices are increasing and the US government has been making an effort to reduce the country’s reliance on imported oil under Obamas administration. However, as President Elect Donald Trump promises to make greater benefits for oil and gas investments the tide is turning to oil well production. The increase in domestic oil drilling will significantly increase the country’s oil reserves.
In order to make this happen, the administration has been taking steps to stimulate actions. The approach of the federal government about this is not investing in big oil plants but investing largely on private-source and small-scale oil ventures.
For many years, the tax benefits of investing in oil wells have already been established substantially. This only implies that investing in oil wells today is a smart investment strategy for investors who are after secured investing.
Investing in oil wells also provides investors the safety net for a long-term financial stability. Investing in oil wells is a form of local energy production and is a tax-advantaged investment that most wealthy investors venture in. It is safe to think that no other industries offer more tax benefits than investing in oil wells. Below is a list of the tax benefits of investing in oil wells.
- Intangible Drilling Costs – This means everything on the drilling sites except for the drilling equipment. Intangible drilling costs include the fracking process, the crew, employees, associated equipment, drilling mud, etc. and other items needed for drilling. These expenses could amount up to 80% of the oil well drilling cost. You could deduct 100% of the portion of your intangible drilling expenses in the same year they are obtained.
- Tangible Costs – Tangible costs are the remaining costs that you could write off at 100% over 7 years.
- Lease Costs – Lease costs are the expenses of acquiring mineral rights, which includes all legal and administrative costs. These are deductible at 100% in the same year that these costs are incurred.
- Depletion Allowance – Depletion allowance is the most thrilling tax benefits for investors who are investing in oil wells due to the depletion of the assets that is allowed by the tax code. Therefore, 15% of the gross income from oil revenue will be excluded from the taxation.
- Active Income – For the purpose of tax, the working interest is not any passive activity. This only means that net losses are considered as active income and could be utilized to offset other income forms like interest income, capital gains, and even wages.
- Alternative Minimum Tax – “Preference item” is referred to the excess of the intangible drilling expenses which have all been exempted on the alternative minimum tax returns.
Investing in oil wells on a local basis helps in making the country more self and energy-sufficient because dependence on imports from other countries can be reduced relatively. From the perspective of tax, investing in oil wells have never been better. On the other hand, drilling for oil is also a risky, so it may not suit everyone but for those who are qualified, participating and investing in oil wells can help them achieve their investment goals.
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