Investment Tax Reductions:
Investment tax reductions are one of the many reasons highly qualified investors consider investing in oil and gas. While investing in oil offers a variety of short and long-term benefits, investment tax reductions offer an attractive additional benefit for the oil and gas investor, allowing both expenses to be deducted as well as income to be eared tax-free.
Because the global demand for oil and gas continues to increase and the U.S. consumes almost one-fourth of the supply while supplying much less, there are a variety of investment tax reductions available to encourage additional investment in domestic gas and oil drilling. Additional domestic production will reduce foreign independence making the investment tax reductions a worthwhile incentive.
There are investment tax reductions in place that help cover nearly every cost incurred during the exploration for, establishment of, and production from every well that is drilled. The list of investment tax reductions available to oil and gas investor provides numerous incentives to consider.
Intangible Drilling Costs (IDCs) are responsible for over half of the costs incurred through the drilling process, but due to the investment tax reductions in place, these costs are 100% deductible. IDCs include everything besides the drilling equipment. Tangible Drilling Costs (TDCs) are relevant to the actual drilling equipment and are also fully deductible. The only difference between these drilling costs is that IDCs are deductible within the next tax year and TDCs must be depreciated over seven years.
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Lease costs are also 100% tax deductible. Lease costs include the dealings associated with minerals, the lease operating costs, and any legal or administrative expenses that are incurred during the drilling process. Congress has also allowed several tax credits associated with domestic oil and gas drilling.These investment tax reductions were developed to enhance a well’s oil and natural gas production. Investors can claim up to 15% of the costs incurred for enhancing production, as well as 15% of the gross income earned from the profits. These generous investment tax reductions provide encouragement to investors to promote increased domestic oil and gas production.