OilandGasInvest.com
The Portal for Direct Investments in Oil & Gas Properties.
Tax Advantages of Direct Investments in Oil and Gas
NOTICE: The following is a generalized summary of certain items in the U.S. Internal Revenue Code relating to oil and gas exploration and is for discussion purposes only. It is neither exhaustive nor detailed. Each individual should understand how these items will impact them personally by consulting with their own tax advisor. In addition, other items unique to the individual may also be relevant. Investors should contact their tax consultants for a complete explanation of the benefits of investing in oil and gas.
Tax Advantages Are To Encourage the Development of Domestic Reserves
Domestic oil and gas development helps make our country more energy self-sufficient and reduces our dependence on foreign imports. In light of this, Congress has provided tax incentives to stimulate domestic natural gas and oil production financed by private sources. Investments in oil and gas can have many tax advantages which greatly improved the economics of these investments.
Active vs. Passive Income
The Tax Reform Act of 1986 introduced into the Tax Code the concepts of "Passive" income and "Active" income. The Act prohibits the offsetting of losses from Passive activities against income from Active businesses. The Tax Code specifically states that a Working Interest in an oil and gas well is not a "Passive" activity. Therefore, deductions can be offset against income from active stock trades, business income, salaries, etc.
Intangible Drilling Cost (IDCs) Tax Deduction
The intangible drilling costs (IDCs) may range between 55 - 80% of the cost of the well. These IDCs are 100% deductible during the first year.
For example, a $100,000 investment would have between say $60,000 to $75,000 in tax deductions during the first year of the venture (Refer to Section 263 of the Tax Code). So if you were in the 35% tax bracket, your reduction in taxes would reduce your investment costs by $21,000 to $26,250.
Tangible Drilling Costs Tax Deductions
The total amount of the investment allocated to the equipment "Tangible Drilling Costs (TDCs)" is 100% tax deductible by amortization over a 7 year period.
Disclaimer
OilandGasInvest.com is not responsible for any investments made on the above advice. The above tax information is not to be construed as tax advice. Investors considering a direct investment should consult with their tax advisor.
The following disclaimer is included to ensure that we comply with U.S. Treasury Department Regulations. The Regulations now require that either we 1) include the following disclaimer in most written federal tax correspondence, or 2) undertake due diligence that we have not performed (but can perform on request).
ANY U.S. FEDERAL TAX ADVICE CONTAINED IN THIS COMMUNICATION (INCLUDING ATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF 1) AVOIDING PENALTIES UNDER THE INTERNAL REVENUE CODE OR 2) PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY TRANSACTION OR MATTER ADDRESSED HEREIN.
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We cannot guarantee the completeness, timeliness or accuracy of the information contained in this web site. Nothing in this web site contains investment advice. Any decisions based upon the information contained in this web site are the sole responsibility of the user.
This site is for informational purposes only and is to be used only as a starting point for potential oil and gas investment considerations. Consult with tax advisor and legal counsel before you make any investment decisions regarding investments in oil and gas, 1031 exchanges or changes to your 401(k) or investments using your 401(k). In making an investment decision, investors must rely on their own examination of a partnership; which include the merits and risks involved, including the management, and any partnership agreements, or other written materials used to represent the investment for consideration of oil and gas direct investments. Oil and gas investments are subject to significant risk and are not suitable for all investors. Investments are generally subject to significant fees and expenses. An investment could result in partial or complete loss of the principal investment. Oil & Gas investments are speculative in nature, and are investments involving a high degree of risk. Persons considering these investments must be accredited, sophisticated, and qualified to make them.