Tax deductions for oil and gas investments

Adding some liquid investments or less dynamic investments to your portfolio lets you earn tax benefits and long-term profits from natural gas and oil while also addressing risk. Each individual participant of course, should consult with their tax advisor. Since working interests in natural gas and oil wells are defined as an active income activity for tax purposes, losses for investors in these fields can be deducted against business income, capital gains, interest income, salary and other active income sources.

The Alternative Minimum Tax (AMT)

Direct participation in oil and gas can generate several tax benefits. These benefits range from large up front deductions for intangible drilling costs IDCto tax credits for the development of certain types of tight formations. The following is a synopsis of the tax benefits generated by direct participation oil and gas investments. These expenses are deductible because they offer no salvage value whether or not the well is subsequently declared to be dry. Examples of these types of expenses would be labor, drilling rig time, drilling fluids. The accounting method adopted however could affect the deduction period. Intangible Completion Costs : As with IDCs these costs are generally related to non salvageable completion costs, such as labor, completion materials, completion rig time, fluids .

Finding Legitimate Oil and Gas Investments

Sophisticated investors are always looking for the best returns on their investments , and one way they do this is by seeking out opportunities offering robust tax advantages. Thanks to US government intervention, domestic production of natural gas and oil offers tax breaks for both producers and investors. In fact, natural gas and oil investment offers tax benefits not found anywhere else in the tax code. Part of the reason is because the US government wishes to encourage domestic production of energy sources such as natural gas and oil. Doing so reduces reliance on foreign fuels. To encourage domestic production, the government is willing to offer generous advantages to investors, who are needed to develop the domestic industry. Right now, investing in natural gas and oil can be especially lucrative.

Direct participation in deducyions and gas can generate several tax benefits. These benefits range from large up front deductions for intangible drilling costs IDCto tax credits for the development of certain types of tight formations.

The following is a synopsis of the tax benefits generated by direct participation oil and gas investments. These expenses are deductible because they offer no salvage value whether or not the well is subsequently declared to be dry.

Examples of these types of expenses would be labor, drilling rig time, drilling fluids. The accounting method adopted however could affect the deduction period. Intangible Completion Costs : As with IDCs these costs are generally related to non salvageable completion costs, such as labor, completion materials, completion rig time, forr.

Depreciation : As opposed to services and materials that offer no salvage value, equipment used in the completion and production of a well is generally salvageable. Equipment in this category would include casing, tanks, well head and tree, pumping units. Two types of depletion deductiojs available, cost and statutory also referred to as percentage depletion. Cost depletion invesments calculated based upon the relationship between current production as a percentage of total recoverable reserves.

Statutory or percentage depletion is subject to several qualifications and limitations. Tax Credits : Congress has enacted several tax credits in relation to oil or natural gas production. Qualified fuels include oil shale, tight formation gas, and certain synthetic fuels produced from coal. Historically the tax benefits from oil and natural gas production could potentially present the possibility for taxation under the Alternative Minimum Tax AMT.

An independent producer was defined as an individual or company with production of 1, barrels per day or. Although there is still the potential for AMT taxation for excess IDCs, percentage or statutory depletion is no longer considered a preference item. Lease Operating Expense This expense covers the day to day costs involved with the operation of a.

The expense also covers the costs of re-entry or re-work of an existing producing. Lease operating expenses are generally deductible in the year incurred, without any AMT consequences. The immediate deduction of the intangible drilling costs or IDCs is very significant, and by taking this up front deduction, the risk capital is effectively subsidized by the government by reducing the participant’s federal, and possibly state income tax.

Ags individual participant of course, should consult with their tax advisor. Please fill out the form below or call directly to speak with one of the principals at to request more information.

Energy Development Westheimer Rd. Oil and Gas Tax Benefits Direct participation in oil and gas can generate several tax benefits. Get the insiders take on oil and gas joint ventures, off-the-press news, and hot industry topics.

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Finding Legitimate Oil and Gas Investments

You can achieve all these goals by investing in tax deductions for oil and gas investments and gas, but how you approach investments will depend on your aims. The Tax Reform Act of prevents taxpayers from offsetting losses from passive income against active income. Oil and gas can help you diversify your investments and, since prices can increase, leading to even larger distributions, they can be a great choice for someone who wants to add strong profitability potential to a portfolio. You can invest in companies drilling for oil and natural gas. Therefore, even the wealthiest investors could invest directly in oil and gas and receive all of the benefits listed above, as long as they limit their ownership to 1, barrels of oil per day. You may qualify if you are using chemical, steam or carbon monoxide methods in an attempt to extract more from a field. You want to ensure you are making investment choices based on current tax breaks. Furthermore, it doesn’t matter whether the tax deductions for oil and gas investments actually produces or even strikes oil. Many investors select limited partnerships for oil and natural gas investments, as these formations limit liability to the extent that an investor has invested. All royalty income is reportable on Schedule E of Form Below, we’ll cover the benefits of tax- advantaged oil investments and how you can use them to fire up your portfolio. Working Interests: This is by far the riskiest and most involved way to participate in an oil and gas investment.