One of the primary reasons investors consider the oil and gas industry is because of the oil gas tax benefits available for qualified investors. Oil gas tax benefits can often make the difference for an investor who is trying to determine the best course of action. The oil gas tax benefits offered to investors were developed as an incentive program to encourage and increase domestic drilling.
Oil gas tax benefits like fully deductible and depreciate tangible and intangible expenses were carefully constructed to provide accredited investors with a way to recoup some of the costs of assisting in the development of additional domestic resources. Domestic resources are critical to the growth and stability of the American economy for two reasons: One, when we increase our domestic supplies of oil and gas, we reduce our reliance on unstable supplies from the Middle East. Two, when we increase domestic drilling for oil and gas, there is a direct benefit to the economy in terms of a boost in jobs and ancillary industry growth.
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Oil gas tax benefits are available to accredited investors even when wells are extremely profitable. In fact, one of the primary benefits of oil and gas investment, when the investment is done through joint venture or partnership, is the ability to treat the investment as active, not passive income. This allows the investor to take full advantage of oil gas tax benefits.
Oil gas tax benefits are not available to every investor. To be eligible for most of the oil gas tax benefits offered, you must be an accredited investor, meeting minimum financial requirements, and invest in oil and gas through direct participation programs or joint ventures in which you purchase units of ownership in the wells.
To be an accredited investor who can take advantage of the lucrative oil gas tax benefits available, you must be able to demonstrate that your annual income has been at least $200,000 for the most recent two years – $300,000 for married couples – and that the income is expected to continue. Certain entities, such as legal trusts, can also meet specific requirements to be accredited investors and take advantage of the same oil gas tax benefits.
With benefits like being able to earn up to 15% of the gross income from a well untaxed, it is definitely worth considering oil and gas investment in order to take advantage of the oil gas tax benefits that are currently available.