What are the tax benefits with an oil and gas investment and why does the U.S. Government give them preferential treatment?
A. Investors in qualified domestic oil and gas projects are allowed to write-off 100% of all monies spent on intangible drilling and developmental cost. Investors also depreciate equipment purchases, usually over a 5 to 7 year time period. Up to 75% of the total investment amount quite often can be written off in the first year. This write-off may be taken in the first year or amortized over 60 months. The amortization option is especially useful to investors who are in the AMT (alternative minimum tax) brackets. (See your accountant or tax attorney for clarification.) The available Depletion Allowance of 15% to 20% is figured on income received. Simply stated this means 15 to 20 cents of every dollar of revenue is tax free. This special tax treatment is afforded only to domestic oil and gas projects because they are national security issues. This is a way the government encourages development of domestic oil and gas resources and thereby helps to reduce our dependence on foreign crude
