Are you an accredited investor interested in oil and natural gas tax advantages? If so, know that you can enjoy tax deductions for both tangible and intangible drilling costs. To better understand why the tax deductions of intangible and tangible oil and gas drilling costs differ, it’s essential to have a solid idea of just what these costs mean.
Tangible Costs of Oil Drilling
Tangible costs related to drilling for oil and natural gas have to be depreciated over seven years. These costs pertain to the direct cost of the drilling equipment such as drilling rigs, tractors, trailers, tandem trucks, dozers, and excavators to name a few.
Intangible Oil and Gas Drilling Costs
Intangible drilling costs include expenses associated with:
- Mud drilling
- The fracking process
Tax Advantages of Oil and Natural Gas Investments
Natural gas and oil investments yield tax benefits to investors. Why? It’s because the U.S. government wishes to encourage domestic production of energy sources — like oil & natural gas — to reduce the country’s dependence on foreign fuels.
However, to benefit from tax advantages and make smart investments, you need support.
Oil and natural gas investments are not like those in any other field, so enlisting the help of a knowledgeable professional is crucial.
At Viper Capital Partners, our team has over five decades of experience facilitating capital formation and management within the oil and natural gas industry. We’ve handled many cases dealing with natural gas and oil investments, as well as deduction options for both tangible and intangible drilling costs.
Tax Deductions for Tangible Drilling Costs
As an investor, you’ll enjoy a 100% deduction on tangible drilling costs — expenses that must be diminished over the course of seven years.
For example, let’s say it costs an investor $300,000 to drill a well. If it were determined that 75% – or $225,000 — of those expenses would be considered intangible costs, that means the remaining 25% would be regarded as tangible. What’s more, the remaining $75,000 in tangible drilling costs could be written off according to a seven-year schedule.
Tax Deductions for Intangible Drilling Costs
Intangible oil and gas drilling costs represent one of the most substantial tax breaks available for oil companies. Independent natural gas producers can now choose to immediately deduct all of their intangible drilling costs.
Intangible oil and gas drilling costs roughly constitute 60 to 80% of the total cost of drilling a well. Intangible drilling costs are 100% tax-deductible in the year incurred.
In other words, intangible drilling cost tax deductions are available in the year the money was invested, even if the parties do not start drilling until March 31 of the year following the contribution of capital.
As a leader in capital placement and deployment throughout the energy ecosystem, Viper Capital Partners is the ideal capital formation entity to meet your drilling investment needs.
If you’re ready to reach your financial goals as they relate to drilling for natural gas, contact us today.