Investment Updates
Drill Down For Three Key Oil And Gas Tax Breaks
Published Monday, October 6, 2014 at: 7:00 AM EDT
For people who aren't averse to a little risk, there is a wide range of investment opportunities to choose from. A case in point: an investment in oil and gas partnerships. You don't have to be an oil baron like J.R. Ewing to get in the ground floor of a deal. What's more, the tax breaks can be bountiful, especially in the early years of ownership.
Specifically, with such an investment you may qualify for three key tax breaks: (1) deductions for drilling costs; (2) depletion deductions; and (3) favorably taxed capital gains when you sell your interest. Also, the tax law provides a safety net against losses for some investors.
1. Drilling cost deductions. You may be able to get a tax deduction for "intangible" and "tangible" drilling costs. Intangible drilling costs (IDCs) are associated with drilling expenses such as labor, fuel, chemicals, hauling, etc. Typically, these will represent from 65% to 85% of the cost of a well. A special tax law provision allows a current deduction for IDCs paid before the end of the year as long as drilling begins within 90 days after the close of the taxable year and certain other technical requirements are met.
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