Benefits of Oil and Gas Partnerships
The benefits of oil and gas partnerships are crucial for the oil and gas investor seeking to take part in the North Dakota oil boom.
When oil and gas investors start investigating the benefits of oil and gas partnerships, they are often surprised to discover that oil and gas partnerships offer some of the most generous tax benefits still available, The primary expense incurred in oil and gas partnerships is for drilling, testing, and completing the oil or gas well. These costs can be deductible for tax purposes. They usually range from 65%-80%. Plus 15% percent of the income from the oil and gas partnership is tax free because of a special depletion allowance. The depletion allowance, which is available regardless of the investment amount, can be deducted throughout the life of the partnership, functioning similarly to asset depreciation.
The benefit of oil and gas partnerships, which are often referred to as drilling partnership programs or DPPs, is that they are a form of investment designed to allow oil and gas investors to invest in ownership units of oil and gas wells. From development and drilling to production, oil and gas partnerships are treated quite differently than other forms of oil and gas investing, because the oil and gas partnership puts the investor in the driver’s seat as an owner of the oil or gas well.
The benefits of oil and gas partnerships provides oil and gas investors the ability to deduct expenses related to establishing the oil or gas well. The costs of exploration, geological surveys, and operating expenses can be deducted from the investor’s income.
The Benefits of Oil and Gas Partnerships limit the investor’s liability and risk
To participate in an oil and gas partnership, the investor purchases units of ownership in the oil or gas well. Often, the oil and gas investor is able to begin as a general partner at the beginning of the investment but later convert to a limited partner to limit liability even further.
In addition to the benefits of oil and gas partnerships that provide investors the ability to reduce tax burdens, there is a decreasing risk of liability to investors over the course of the partnership. Investors can further limit liability by choosing oil and gas partnerships that are insured and indemnified.
The North Dakota oil boom has led to a visionary opportunity to once and for all end our reliance on foreign oil and gas supplies. To that end, the U.S. government encourages oil and gas partnerships with incentives such as the ability to deduct up to 80% the investment cost during the same tax year. Oil and gas investors can both help the country achieve energy dependence and reduce their overall tax burden.
This information is not to be used for TAX ADVICE. Please contact your tax professional and or attorney for more information to see how these tax benefits for oil and gas partnerships may apply to your particular situation.