The oil and gas industry is one of the largest sectors in the world in terms of dollar value, generating an estimated $5 trillion in global revenue as of 2022. Oil alone powers a third of the world's energy production – far more than any other commodity – making it a lifeblood of the global economy.
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Oil & Gas investment programs are designed to establish long-lived oil and natural gas reserves via a developmental drilling program. Developmental wells are wells drilled in proven oil and gas areas where the risk of drilling a dry hole is reduced. Oil and gas investment programs can provide investment participation in numerous horizontal wells in prime drilling areas within the U.S. Many of these programs offer a significant tax deduction.
These deductions can vary, depending on how the program is structured. Developmental drilling programs can provide attractive tax benefits to investors. Under current tax law, most programs provide a 70-75% write-off of the investment against non-passive income (if invested as a general partner) in the first few years. For example, if you invest $100,000 you may receive a $70,000 – $75,000 tax deduction over the first few years. If you are in the top federal tax bracket (37%) and pay a 5% state income tax rate, your $100,000 investment can reduce your personal income tax bill significantly (approx. $30,000) in the first few years of the investment.
In addition, the producing wells from these programs usually generate a regular revenue stream to investors that is partially tax sheltered. Machen Wealth can help you with the oil and gas depletion allowance and how this could apply to you.