Oil: A Big Investment with Big Tax Breaks

When it comes to tax-advantaged investments for wealthy or sophisticated investors, one commodity continues to stand alone above all others: oil. With the U.S. government’s backing, domestic energy production has created a litany of tax incentives for both investors and small producers, and oil is no exception.

– Mark p. Cussen, CFP, CMFC, AFC

Tax Benefits

There are many reasons why qualified investors choose to take advantage of joint venture oil and gas exploration opportunities, but one of the most compelling reasons is the tax benefits that are afforded by this unique investment opportunity. In fact, when it comes to tax-advantaged investments for wealthy or sophisticated investors, oil and gas commodities stand alone.

Domestic energy production in the United States comes with a large number of attractive tax incentives which, separately or together, complement any tax-advantaged investment strategy. Legacy Exploration can help you take advantage of these tax benefits to build wealth, protect your portfolio, and reduce your overall tax liabilities.

Most notably, there are no income or net worth limitations of any kind associated with oil and gas investment tax benefits. As long as inventors limit their ownership to 1,000 barrels of oil per day, even the wealthiest investors can receive all of the benefits afforded to them in the U.S. tax code. This is why virtually no other investment category in America can compete with oil and gas as far as tax-advantaged investments go–and why Legacy Exploration has made it our mission to help qualified investors take advantage of these benefits.

Oil and Gas Tax Benefits

Several major tax benefits are available for oil and gas investors that are found nowhere else in the tax code. Some of the tax benefits that are available to investors through a joint venture partnership with Legacy Exploration include:

• Intangible Drilling Costs – These include everything but the actual drilling equipment (i.e., labor, chemicals, grease, and other miscellaneous items necessary for drilling). These costs are 100% deductible in the year incurred, regardless of whether the well actually produces or not.
• Tangible Drilling Costs – These pertain to the actual direct costs of drilling. Similar to intangible drilling costs, tangible drilling costs are also 100% deductible but must be depreciated over seven years.
• Working Interest – The tax code specifies that a working interest in an oil and gas well is not classified as a passive activity. This means that all net losses incurred in conjunction with wellhead production can be offset against other forms of income, such as wages, interest, and capital gains.
• Small Producer Tax Exemptions – This allowance, commonly known as the “depletion allowance,” excludes 15% of all gross income from oil and gas wells from taxation. The small producer tax exemption only extends to entities that own, produce, or refine less than 50,000 barrels of oil per day.

Oil and Gas Partnerships

Outside of mutual funds, the other most common way to invest in the oil and gas industry is a partnership, such as the joint venture agreements available with Legacy Exploration. These are sold as securities and must be registered with the Securities and Exchange Commission (SEC), hence why only qualified investors are eligible for oil and gas partnerships. Partnerships provide the tax benefits listed above (and more) on a pass-through basis. Partners receive a Form K-1 each year detailing his or her share of the revenue and expenses.

Have Questions? We Have Answers.

If you are interested in the tax benefits of investing in oil and gas, contact the team at Legacy Exploration to learn more about this attractive tax-advantaged investment opportunity. You can also request your free investor kit to take the first step. If you have specific questions or would like to talk to us about getting started, contact us online or call 214-736-7766.