Mark Kohler breaks down two major tax breaks for oil and gas investors: the Intangible Drilling Cost deduction lets you write off up to 80% of equipment costs in year one, and the depletion allowance exempts roughly 15% of royalty income from tax. Together they create significant cash-flow advantages.
Chapters
Oil and gas, the cost of gas, drilling in the United States. It is a big topic, and it's extremely important that we as a government and as American people try to drill and get all the natural resources we can out of our country before we go and get dependent on other countries around the world, including, of course, the Middle East. So there are government incentives for people that will invest in projects for drilling in the United States. Now these can be very advanced, so I will hit the highlights. The first one is just investing in a drilling project. It's known as an intangible drilling cost strategy. And under an IDC, it allows investors to sometimes take as high as 80% of their first year's investment as a tax write-off for the depreciation of the equipment doing the oil and gas project. Then we also have the depletion allowance that once you start getting royalties, whether you invest in the initial drilling or come in afterwards and buy a royalty, You can exempt the first 15% of your income from being taxed at all with this depletion allowance. So the point is, when you invest in oil and gas, you can actually get write-offs upfront, which we love, not pay tax on the entire cash flow, only on 85% of it, and then have the benefits of future cash flow and the value of a drilling rig. And I have hundreds of clients that pursue oil and gas investments for their incredible tax benefits.
