You can own an oil well right here in the United States. Not only does it offer the prospect of US energy independence, it also has the potential to provide tremendous tax advantages. In fact, savvy investors believe that oil and gas drilling funds may be the only real tax shelters left.
Investing in America pays off. Here’s why.
Believe it or not, Congress actually got it right. Because of a law that dates back a century, Oil and Gas exploration here in the US is encouraged, and the reward is that income from oil and gas working interests, if held directly or through a general partnership, generally is not classified as income from a passive activity.
Typically most of the joint venture drilling costs, called Intangible Drilling Costs (IDC), are deductible in the same tax year and can be offset against active or ordinary income such as; salaries, commissions, bonuses and other types of compensation from regular business activities received from sole proprietorships, corporations or partnerships.
Simply put, for every dollar of IDC invested, the investor receives one dollar of deduction. IDCs can make up roughly 85% of the total investment. By way of illustration, an investment in a Nakoma Exploration Joint Venture of $100,000 could yield up to $85,000 in tax deductions for the year the investment is made. For an investor in a 35% tax bracket, that could mean actual tax savings of up to $32,000 in the first year. The IDC deduction, a non-preference item, reduces the investors Adjusted Gross Income and lowers the clients Alternative Minimum Tax!