So, you’re thinking about investing in oil or gas, but you aren’t sure whether or not it’s a good idea.
Well, to cut a long story short – it’s a good idea.
Not just for the considerable returns you can make, but for the huge tax breaks and write-offs that come with investing in oil and gas.
Let’s take a look at some of the oil and gas tax breaks you can achieve by investing wisely in the sector.
Oil and Gas Tax Breaks for Tangible and Intangible Drilling Cost
Intangible drilling costs cover everything bar the actual drilling equipment used in oil wells and production operations.
So, if the drilling equipment isn’t included, what is included?
You might think there’s little left after the equipment, but you’d be surprised. A few items labelled as intangible drilling costs include labor, chemicals, and mud grease, and these contribute amount to a considerable 60 – 80% of gas and oil production.
Most importantly for investors, they are 100% deductible in any given tax year.
Pretty good, right?
But it’s not only intangible drilling costs that reap the benefits of oil and gas tax deductions, not by a long shot. In fact, tangible costs (costs that contribute to the direct cost of drilling equipment) are also 100% deducted as a tax expense in this country for producers.
This also means that as an investor, you can enjoy 100% deduction from your annual tax as a result of tangible drilling costs, as well as intangible drilling costs.
Active vs Passive Income – Where Do I Stand?
It sounds complicated, but all these terms mean is if you have a working interest in and oil and gas production, it’s not considered to be passive financial activity in the eyes of the law.