Investing in Oil
Good for Your Tax Burden, Your Portfolio, and the U.S. Economy
Investing in oil is an American legacy. Some of the biggest wealth – and philanthropy – came out of investing in oil in the late 19th Century. Back then, technology was limited and the demand for oil was just in its beginning stages. The risks involved in investing in oil were extraordinarily high. Wealthy men pitted their fortunes against nature and their best guess about where they might strike oil.
Fast forward 125 years and the scenario has changed considerably for investors who are considering investing in oil. Not only has technology revolutionized how we find and extract oil so that the risks are minimized, but the global demand for oil has increased so exponentially that the supply cannot keep up. This increasing demand places an upward pressure on the price of oil, making it an attractive investment for serious investors.
There are a number of advantages available for highly sophisticated modern investors who are considering investing in oil:
Tax Benefits. The U.S. government has provided a number of incentives to encourage the expansion of domestic oil investment, creating tax benefits exclusively for investing in oil. These benefits include:
- 100% of tangible drilling costs associated with investing in oil, such as equipment leases and purchases, can be depreciated over seven years.
- The Enhanced Oil Recovery Credit allows investors investing in oil a tax credit for up to 15% of the costs incurred to enhance oil production.
- The Percentage Depletion Deduction
- 100% of intangible drilling costs associated with investing in oil, such as labor, can be deducted during the first year.
- Allows the investor investing in oil to earn 15-25% of the income from a well tax-free.
- 100% of operating costs associated with investing in oil are tax deductible.
- 100% of geological and geophysical costs associated with investing in oil can be deducted over 24 months.
Diversification. For the serious investor who has tired of the volatility of the financial and real estate markets affecting their portfolio, investing in oil can offer a counterbalance to other investments. Commodities often react differently to market factors than financial and real estate markets, making them the perfect counterbalance to diversify a portfolio.
Hedging. Investing in oil can allow the investor to offset the inevitable increases in price oil will experience.
Reducing Reliance on Foreign Oil. By investing in oil in the United States, investors are directly responsible for helping to increase domestic supplies, thereby reducing our reliance on foreign countries for the oil we need to meet our energy and manufacturing demands.