With Thanksgiving now behind us and the holidays quickly approaching, many of us are faced with the question of what to gift to those around us with little to no consideration for ourselves. While it is the season of giving, we must remember that as the year draws to a close, so does the opportunity to take advantage of the tax benefits that investing in an oil and gas limited partnership can provide for 2019 filing.
On average, limited partnerships offer pre-tax returns that oftentimes exceed those of more traditional methods of investing—like stock markets—while minimizing investor risk in comparison. While this alone is appealing, upon realization of the liberal write-offs offered by limited partnerships—typically 85% of your investment amount—one can’t help but be intrigued by the unique benefits limited partnerships offer.
Due to the United States government’s effort to continue to become increasingly more independent of foreign resources, direct investments in American oil and gas offer the largest tax breaks of all existing domestic forms of investment, enabling private investors to essentially, in consideration of the deductions offered, use pre-tax dollars to make their investment into a limited partnership.
As a result of this, investors can obtain noteworthy benefits by taking advantage of what continues to remain a little-known mode of investing, despite its recent increase in popularity over the past decade.
In continuance of the benefits of investing in American oil and gas limited partnerships, one of the more surprising being “partial protection” in the event of a total loss of investment. This is achieved through the reality of there always being potential for a well to turn up dry (a “dry hole”). In the event of a dry hole, part of what investors are losing are considered pre-tax dollars, and due to this, would have otherwise been paid to the United States government—the same United States encouraging oil and gas investments—in the form of income tax, with the potential to equal thirty to forty percent of the original investment.
Allied Resource Partners has a high probability of striking oil, and we do everything within our power to transform that probability into a reality, enabling our partners to earn income via their investments in the limited partnerships we offer. Benefits similar to those in the event of a loss apply to income received by the investor from a producing well.
Due to the finiteness of oil and gas, what’s known as “depletion allowances” are granted for a portion of a producing well’s gross income. These allowances can shelter up to fifteen percent of the well’s annual production from income tax. The proportion of resources extracted is divided by the total resources to provide the percentage of allowance permitted. These allowances can be taken for as long as a well produces.
Much the same to the depletion allowances granted to producing wells, an investor in an oil and gas limited partnership receives a likewise deduction on income received from the producing well. This is due to the fact that the tangible equipment and resources used to bring a well to fruition are considered salvageable, as a general rule, and therefore their value is depreciated over a period of seven years. These expenses typically account for twenty-five to forty percent of the total well costs.
Tangible drilling costs (otherwise known as “TDCs”) make up for considerable expenses, such as pump jacks, casing, electronic submersible pumps and other necessary drilling equipment. These TDCs are then capitalized and depreciated over a period of five years, while the deductions are capitalized for a longer period of time.
Lease operating expenses (otherwise known as “LOEs”) are the ongoing costs necessary to operate the well on a day-to-day basis, which our partners are sent detailed statements of with each of their revenue payments. These LOEs are deductible during the year they are incurred, on a year-to-year basis.
There are additional deductions allowed for intangible costs. There are two examples of intangible costs. The first being intangible completion costs (“ICCs”), which average around fifteen percent of the total cost of the well, and encapsulate necessary operations like labor, completion materials and fluids without salvage value, and the second are what are known as “IDCs”, or intangible drilling costs.
Intangible drilling costs are expenditure that have no salvage value, such as fuel, roustabout wages, hauling fees and repair expenses. These IDCs generally make up for seventy-five to eighty percent of the total cost of the well and are one-hundred percent deductible against income within the first year.
Should you choose to invest in American, independent oil and gas limited partnerships, you will receive the appropriate statements in correspondence with your investment at the start of tax season from the company in which you partnered (or of course, Allied Resource Partners, if you haven’t already trusted us with a portion of your portfolio) so you can make the suitable deductions when filing your future taxes.
This is something your accountant, or an approved representative of Allied Resource Partners, will be happy to review with you in further detail, although we’ve made our best effort to provide the most essential information in the above-mentioned.
Our outlook for the new decade is a bright one and we are busy at work to continue to prove to our partners why it is we “lead the way” in independent, American oil and gas limited partnerships.
We offer you our warmest wishes for the holiday season and best of luck in the new year to come.
