Save Money On Your Taxes With Texas Oil
The United States needs domestic oil and gas production, as opposed to importing it, for its own security and economic growth and sustainability. Congress has provided these incentives to stimulate and encourage petroleum development domestically. As a result, oil and gas drilling programs offer some of the most attractive tax benefits available to investors.
Intangible Drilling & Completion Cost (IDC)
In the process of drilling a well, there are certain expenses incurred that have no salvage value. They include everything but the actual drilling equipment. They may consist of labor, drilling expenses, testing, mud, grease, chemicals, etc. Basically the miscellaneous items necessary for drilling. These expenses generally represent anywhere from 65-80% of the total cost of the well. The investor’s proportionate share of these intangible expenses can be written off in the year in which they were incurred.
Tangible Completion Expense
These are derived from the total amount of the investment allocated for equipment or other salvageable items. Typically, the amount represents 20-35% of the total cost of the well and are 100% deductible as a depreciation and may be taken over a seven year period (see Section 263 of the Tax Code).
Active VS. Passive Income
The Tax Code specifically states that a Working Interest in an oil and gas well is not considered a passive activity. This means that all net losses are active income incurred in conjunction with well-head production and, therefore, can be offset against your other forms of income such as wages, interest and capital gains.
Depletion Allowance
This may be considered one of the most enticing benefits afforded oil and gas investors. This incentive excludes 15% of all gross income from taxation on your oil and gas wells. In other words, 15% of the Gross Income from an oil and gas producing property is tax-free.