Tax Deductions

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Tax Deductions

Some of the biggest advantages to oil drilling investments are also some of the most universally appreciated: Tax breaks!

Qualified investors can use the unique tax treatments of oil and gas drilling investments to generate income with cash flow that ordinarily wouldn’t have any earning potential. And, you don’t have to take a loss to get these tax advantages.

For example, one type of deduction involves intangible drilling costs (IDCs). IDCs include factors like a drilling project’s fuel and labor costs, as well as anything else aside from the actual drilling machinery and equipment. Normally, these IDCs make up around 70 to 85 percent of a well’s overall production costs.

So, imagine that you invested $100,000 in an oil-drilling operation. Let’s say that 80 percent of the involved costs were IDCs. According to current tax laws, you could subtract $80,000 from your total taxable income from the year that you made the investment!

On the other hand, tangible drilling costs (TDCs) represent the costs of the drilling machinery, such as items like wellheads. The amount of money that you invested in these TDCs translates to depreciating capital, which means that you’ll gradually recover those costs over a span of several years.

Clearly, there are some impressive benefits to investments in oil and gas, and this is just the beginning. There are more tax deductions possible with oil investments than perhaps in any other investment field. Reach out to us, and we’ll get back to you on how you can start taking full advantage of these unique opportunities.