I will use this article to outline the major tax advantages of oil real estate investments. If you want to learn more about oil real estate investments, click here.
There are unique and specific tax credits available to people who invest in oil production.
These tax breaks happen to be some of the most lucrative tax advantages of any investment vehicle. While I can’t guarantee these tax credits will be available in the future, they do provide a very strong incentive to consider investing in oil production right now.
When your clients invest in oil based real estate investments, they are able to enjoy the following tax breaks:
1. Small Producers Tax Exemption
This tax exemption is also known as the Percentage Depletion Allowance. It’s quite possibly the most lucrative tax break for small producers and investors. This tax break makes 15% of the gross income of from oil and gas production tax free income for the typical investor. This exemption is not allowed for large oil companies/investors or people who sell oil and gas products on the retail market.
Bottom Line: 15% of your investors income from investing in oil based real estate investments is tax free income.
2. Intangible Drilling Costs
From 65 to 85% of an interest in oil production will be considered Intangible Drilling Costs. These costs are 100% tax deductible in the first year. Intangible Drilling Costs are the expenses the company incurs drilling the well. These include all the expenses other than the equipment and lease of the property.
Bottom Line: In the first year of the investment, they will be able to write off up to 85% of the investment.
3. Tangible Drilling Costs
Between 15 to 25% of an oil real estate investment can be written off as Tangible Drilling Costs. This includes the actual cost of the equipment required to drill the well. These costs are also 100% deductible and can be written off according to a seven year schedule.
Bottom Line: Another 15 to 25% of your clients investment will is tax deductible over a seven years schedule.
These tax advantages are available because the U.S. wants to promote domestic oil production. When we develop our own energy resources it makes our economy more self sufficient.
Oil and gas investors have a unique set of tax breaks because our country has unique circumstances making domestic energy development especially important to our country’s future.
Oil based real estate investments allow your clients to increase their cash flow, reduce their tax burden and reduce their headaches from managing their properties.
What more can you ask for?
This is part one of a two part series on the tax advantages of oil based real estate investments. Click here to view part two.