Tax Benefits
Always review your specific and personal situation with your tax advisor!
Oil and gas direct investments can provide one of the last great tax benefits for investors, incentives placed into the Tax Code by Congress to help encourage domestic production. Dependency on foreign oil is a key topic for the US government, and until we and the world can develop valid alternative sources of energy, oil and gas will remain vital. Congress has made "participation in oil and gas ventures among the best tax advantaged investments," according to Jeff Schnepper, MSN Money website; author of the best-selling How to Pay Zero Taxes in its 15th edition, and author of a number of other books.
- The kind of oil and gas program that you invest in will dictate the kind of tax benefits you will get. There are many kinds of structures and programs. For instance, in a pure drilling program, you should receive a rather large portion of your investment dollars as a write off in year one (depending on the deal structure) through Intangible Drilling Costs (IDCs) and other write-offs.
- All direct oil and gas investments are allowed a ‘Percentage Depletion’, which is much like Depreciation in real estate. If applicable, you can deduct 15% of the annual gross income from oil and gas cash flow recieved. The 1990 Tax Act provided special tax advantages for small companies and individuals not available to large oil companies, retail marketers or refiners.
- Active vs Passive Income: The Tax Code specifically states that a Working Interest in oil and gas is not Passive, so deductions can be offset against income from stock trades, business income, salaries and such (Section 469(c)(3) of the Tax Code), on Schedule C. Not all oil and gas investments involve a Working Interest, but if it does, you may offset active income with the deductions.
- Alternative Minimum Tax: Since the 1992 Tax Act, Intangible Drilling Costs were specifically exempted as a tax preference item. Alternative Minimum Taxable Income generally consists of the adjusted gross income minus allowable items plus the sum of tax preference items.
Please: Always review your specific and personal situation with your CPA regarding the various tax benefits, and what may benefit you! A helpful book for accountants is the Oil and Gas Federal Income Taxation 2007 by Patrick & Sean Hennessee. (CCH, a Wolters Kluwer business).
Tax laws are subject to change without notice. Neither Kathy Heshelow nor CapWest Securities Inc., provide legal, tax or estate planning advice. For questions about a specific situation, please consult a qualified advisor.
This is not an offer to buy or sell any security. Securities are only offered by PPM to accredited investors. Investments are highly speculative, subject to up-front fees and expenses that may impact investor returns and outweigh the tax benefits, are generally illiquid, the stated investment objectives may not be met, appreciation and income are not guaranteed and there is the potential for the loss of principal invested.