Advantage: O&G

Tax Benefits

Oil and gas investing provides substantial tax benefits. 100% of the investment can be used as an expense deduction with a majority to be utilized the year the investment is made. 

Intangible Drilling Costs (IDC): Approximately 80% of the investment is considered IDC’s. Examples of these intangibles are fuel, mud, chemicals, and labor. 

An example: Leasehold and Drilling cost are $150,000, 80 percent of the cost is considered intangible so investors could take advantage of a $120,000 deduction the first year. 

Deductions are available when the funds are “at risk” or about when a well begins its operations to drill. Intangible drilling costs are regarded as “tax preference item,” and are exempt when considering the 1992 Tax Act, Alternative Minimum Tax.

The remaining 20% of investments is considered tangible drilling costs. Examples include pipe and production equipment. Through the IRS tax code, Section 179, tangible are expensed or amortized over a period of time.

There is also “depletion allowance” which allows 15% of oil and gas gross income to be tax-free.

This page is for informational purposes only and is not intended to give tax or legal advice, contact your accountant or legal advisor. The tax benefits of investing on oil and gas do not outweigh the risks.