Tax Advantages of Oil & Gas Investing
Lower your Taxes & Boost Returns with Major Tax Benefits Available to Oil and Gas Investors Found Nowhere Else in the Tax Code
Direct energy investing offers some of the most lucrative tax advantages in the entire U.S. tax code.
For decades America’s wealthiest investors have been taking advantage of these generous tax benefits to lower their tax rates and significantly mitigate federal tax liabilities. An oil and gas investment with Tunnel Oil & Gas Funds can help you take advantage of these tax benefits to deliver the same effect to your bottom line.
Why did the government create these tax incentives?
In the wake of the OPEC “oil shock” crisis that rocked the U.S. economy in the 1970’s, the U.S. government made domestic energy production a national strategic priority. This included creating a series of special tax incentives, aimed at boosting domestic oil and gas investment.
Active VS. Passive Income
The tax code specifies that a working interest (as opposed to a royalty interest) in an oil and gas well is not considered to be a passive activity. This means that all net losses are active income incurred in conjunction with well-head production and can be offset against all forms of income such as wages, interest and capital gains.
Intangible Drilling Costs
Approximately 75-80% of the well cost, which includes things you can’t reuse (labor, drilling rig, rental costs, drilling mud, etc). You can deduct 100% of these expenses in the year in which they are incurred.
Tangible Drilling Costs
Roughly 10 – 15% of the well cost, which covers things you can recover or resell after drilling (storage tanks, wellheads, and on surface equipment). These are items that have been historically depreciated over the production life of the well, or 7 years. Thanks to a new 2018 law in effect until 2023, you can now deduct 100% of tangible costs in the first year.
Depletion Allowance
This incentive allows you to deduct 15% of the annual income from your oil or gas well once production comes online. This reflects the fact that oil and gas wells naturally produce less volume with each passing year.
| Estimated Tax Savings from Direct Oil & Gas Investment | |
| Investment Amount | $100,000 |
| Investor’s Tax Rate | 35% |
| Percent of Investment as IDC,TDC | 95% |
| Net Cost of $100k Investment | $66,750 |
| Net 1st Year Tax Savings | $33,250 |
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Offerings available only to accredited investors.
According to SEC regulations, an accredited investor is someone with a net worth exceeding $1 million (excluding the value of the person’s residence) or someone who has earned an income of $200,000 (or $300,000 for a married couple) in each of the prior two years, someone who holds a Series 7, 65 or 82 license.