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Big Breaks From The IRS

Accountant doing taxes.

How would you like the freedom to choose what you do with your money? Let's face it, If you make $200,000 this year you write a check to Uncle Sam for $80,000.


When you participate in one of our programs you can take advantage of the opportunities the government has to offer investors in American Oil. You get to decide what to do with the $80,000.



Domestic Oil and Gas Production Is Favored In The Tax Code

The costs associated with drilling an oil and/or gas well are separated into three components: intangible drilling costs, tangible drilling costs, and lease or operation costs. Under the Tax Cuts and Jobs Act of 2017, the tax code allows investors to write off an average of 90% of all investment costs in the year the investment is made – including tangible, intangible and lease costs – with a deduction limit of $1,000,000 without regard to the outcome of the drilling effort.


These include everything but the actual drilling equipment. Labor, chemicals, mud, grease and other miscellaneous items necessary for drilling are considered intangible. These expenses generally constitute 80% to 90% of the total cost of drilling a well and are 100% deductible in the year incurred.


Tangible Drilling Costs, or TDC’s include capitalized and depreciated equipment and comprise 15 to 20 percent of total costs. These costs are 100% deductible in the year they are incurred.


The tax code specifies that a working interest (as opposed to a royalty interest) in an oil and gas well is not considered to be a passive activity. This means that all net losses are active income incurred in conjunction with well-head production and can be offset against other forms of income such as wages, interest, and capital gains.


This is perhaps the most enticing tax break for small producers and investors. This incentive, which is commonly known as the “depletion allowance”, excludes from taxation 15% of all gross income from oil and gas wells. This special advantage is limited solely to small companies and investors. Any company that produces or refines more than 50,000 barrels of oil per day is ineligible. Entities that own more than 1,000 barrels of oil per day, or 6 million cubic feet of gas per day, are excluded as well


Lease Operating Costs (aka Lease Operating Expense or LOE) includes the costs associated with operating the well or wells and maintaining the lease. This includes, but is not limited to lease purchases, expenses, accounting and administration. These expenses are 100% deductible in the year they are incurred.


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