Parwest is among the 5,000 US independent oil and gas companies, which drill over 80% of the wells and produce over 60% of the natural gas and about 40% of the oil. US oil and gas projects have long had distinct tax advantages for investors. These tax advantages are intended to encourage companies, individuals, and groups to invest in energy-related ventures. Some of these advantages are given below:
Intangible Drilling Costs
Whether the well produces oil/gas or not, the intangible drilling cost may be written off 100% depending upon individual investor’s income. 100% of the intangible completion costs may be written off. Up to $24,000 of tangible completion costs (lease and well equipment cost) may be written off in the year it was placed in service. The balance of the equipment cost (the amount in excess of the $24,000) may be depreciated over a 7-year period, reducing the income tax paid.
Income Tax – Depletion Allowance
All income from oil and gas sales is subject to depletion allowance on your income tax. Currently, the depletion allowance is 15% of total gross oil and gas income. Thus, you pay taxes on only 85% of your total oil and gas income. These are the major tax benefits for oil and gas investors. There are other advantages to be determined on an individual basis in consultation with your CPA or tax attorney.