The investment benefits that come from investing in oil and gas make investing appealing to those who possess the appropriate capital. While resources may be required up front within a new investment, you can rest assured that as a highly qualified investor you will have access to a variety of investment benefits that make oil and gas investing a worthwhile consideration. However, to reap all available investment benefits, sophisticated investors are encouraged to perform due diligence and thoroughly research the investment benefits and opportunities before moving forward.
To gain all possible investment benefits, an investor may need to consult with an investment specialist as well as a tax attorney or CPA, because many of the investment benefits associated with investing in oil and gas are directly related to the tax deductions and income breaks offered by congress to stimulate domestic oil and gas production. It is important to be aware that as with any investment that offers extraordinary investment benefits, investors can be targeted by scams. However, these scams can be avoided when the investor looks beyond the promised investment benefits to the longevity, reputation, and history of the company making the claims.
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Investment benefits from oil and gas investing include everything from larger than average returns on investments in successful wells to significant tax advantages for the investor whether or not the well is successful. A sophisticated investor may begin reaping the investment benefits that come from oil and gas investing in the first year of investment. Whether a well strikes oil or not, there are many tax benefits available that encourage the search for domestic oil.
Investment benefits of oil and gas investing include having the ability to write off intangible drilling costs (IDCs), which cover everything aside from the drilling equipment, including labor and all other resources essential to the drilling process.
The intangible expenditures of drilling (labor, chemicals, grease, etc.) are usually about (65 to 80%) of the cost of a well. These expenditures are 100% deductible during the first year. (See Section 263 of the Tax Code.) The total amount of the investment allocated to the equipment is 100% tax deductible. Tangible Drilling Costs (TDCs) may be deducted as depreciation over a seven-year period. (See Section 263 of the Tax Code.).
Investment benefits in the form of tax deductions provide sophisticated investors with the ability to offset other income sources because the net losses from exploratory drilling and well establishing are considered active income rather than passive income. Oil and gas investing is a high risk investment area, open to only the most qualified investors. It is because of the risk involved that the investment benefits are so extraordinary.