Tax Benefits of Your Texas Oil Investment
Understand the Advantages of Investing in Oil
At American Oil Investing, we want to help you make informed decisions about your oil investment, including any potential tax breaks and benefits. The Tax Reform Act was recently passed, which means oil and gas interests are now exempt from being classified as passive income. This act increased the number of potential tax benefits that come along with investing in domestic oil exploration. At American Oil Investing,
The tax incentives that are now available to oil and gas investors include:
- Intangible drilling costs (IDCs): When a gas or oil well is drilled, several of your expenses may be deducted. Once wells start producing, a large portion of an investment is comprised of IDCs, which could written off your annual income in the first year. These costs also include labor-related costs for drilling contractors and similar professional services and expenses.
- Tangible drilling costs (TDCs): According to the Accelerated Cost Recovery System (ACRS), a portion of an investment may depreciate over a seven-year period for a successfully producing wells. TDCs can include a variety of materials such as pipes, storage tanks, and other similar wellhead equipment. TDCS may also account for both any capitalized or depreciated values.
- Depletion allowance: When a well begins production, you may be able to shelter a portion of the derived income through cost or statutory depletion allowances. A cost depletion allowance is based on the current percentage of production and total recoverable reserves, whereas statutory deletion allowances generally only a specific portion of the well’s yearly production.
- Dry hole: If you happen to invest in a well that fails to produce, your full investment could potentially be written off as a loss within the first year.
- Lease operating expenses: Whether your well is new or reworked, the daily costs of operation are typically considered deductibles for the year that they were incurred.
- 1031 exchange: Under IRS Code section 1031, specific types of property may be exchanged for oil and gas interests. This includes raw property, commercial office buildings, as well as other forms of investment real estate. Besides diversifying an investor’s portfolio, this exchange can defer capital gains taxes that would have been due for the real estate property.
Call American Oil Investing to Invest Directly with an Operator
Know your potential tax benefits when you make an oil investment. We offer oil and gas opportunities for accredited investors and always stay up-to-date with our knowledge and techniques. Our company is here to help you understand the tax implications of your investment. Contact us today to request more information about the latest tax benefits.