Texas Oil: The Best Tax Sheltered Investing
Oil investments in Texas oil remains an exciting opportunity for accredited investors. Oil prices are showing strength. For the first time in over three years, West Texas Intermediate oil prices traded over $70 a barrel earlier this year.
So, while supply is falling due to various international issues, demand is rising. And there’s no reason to believe it won’t continue to do so. The U.S. economy is hitting on all cylinders, which is good news for the oil industry, in particular, Texas.
Why Texas Oil Investing?
Despite all the excitement over solar, wind and other green energies, most countries are still using oil to power homes, cars, and industries. Texas is still one of the best areas for oil production, with the state producing 4.2 million barrels of oil per day - almost four times what the state was creating a decade ago. In fact, Texas produces three times more oil than any other state.
Texas has helped make the U.S. one of the leading producers of oil, thanks mainly to the largest oil-producing region in the U.S., the Permian Basin. The U.S. is still behind Saudi Arabia and Russia when it comes to oil production, but with the amount of oil coming out of Permian expected to double over the next half-decade, the U.S. will become the number one oil producing country in the world. In fact, IHS Markit says that the Permian will be producing 5.4 million barrels of oil per day in just five years, which is more than country today, other than Saudi Arabia.
How To Get Into Texas Oil?
Oil well investment opportunities in Texas is still underrated for many oil investors, yet it’s one of the great opportunities when it comes to protecting and growing wealth. Most notably, thanks to the tax breaks and incentives. Oil wells start generating income relatively quickly and can keep making money for years. All the while, investors get to write off the costs of extracting that oil.
Few public companies focus on Texas oil wells, and the other hangup is that investing in stocks and public companies doesn’t offer investors the tax advantages of direct investment. And forget mutual funds or royalty interests, to get the tax benefits, investors must own active interests in oil wells, allowing them to offset income, such as wages and capital gains, with any net losses from oil wells.
As well, investors can shelter some of their income with oil well investing. That is the depletion expense. This expense, also called a depletion allowance, can be used to reduce investors’ taxable income.
Investing in oil wells, to some extent, relies on oil prices. Higher oil prices could be on the horizon. The major Organization of the Petroleum Exporting Countries (OPEC) continue to keep supply in check. There are supply distributions in other oil producing countries like Venezuela, Libya, and Nigeria, which means oil prices could continue to rise as other countries with growing economies increase demand.
Tax Sheltered Investing
The U.S. government encourages investors to take a look at the oil industry. The government offers substantial tax breaks. And it’s paid off, with the U.S. now a powerhouse when it comes to oil production.
Investors can deduct just about everything oil well related to reduce taxes. This includes intangible drilling costs, such as labor and chemicals, and tangible costs like equipment, which is depreciated over some periods.
The costs, tangible and intangible, are 100% deductible for investors. This is allowed whether the well produces any oil or not. Any expenses beyond drilling are deductible, which includes leasing, legal and accounting costs.
Then there’s the depletion tax break, which allows investors in smaller oil production companies to have 15% of gross oil well income excluded from taxation. Think of this depletion allowance as a special tax break, one of the greatest that the U.S. government has to offer. As long as your ownership is limited to smaller oil producers, investors can exclude 15% of gross oil well income from federal taxes. A somewhat significant tax break.
Direct oil well investing, of course, doesn’t come without risks. Accredited investors, however, are generally well-equipped to deal with the risks and have interest, capital gain and related income that can offset with any oil-related losses. Oil well investing might be considered one of the riskier ways to invest in the oil market, but it does offer the most significant return on an investment opportunity while providing a substantial tax shelter.
Oil Well Investment Opportunities Available
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