Tax Free Exchange of Real Estate for
Oil and Gas Producing Wells (IRS Sec. 1031)
Many investors are unaware that they can sell real estate investment properties and roll all the money forward into oil or gas producing wells without paying any tax on the profits from the sale of their real estate property. The IRS considers real estate and producing oil and/or gas properties as “Like Kind”. You can purchase either a working interest or royalty interest in oil and gas wells with money that you otherwise would have paid in taxes. The 1031 Tax Free Exchange is one of the most valuable techniques for preserving profits by deferring taxes, thereby increasing the value of your investments. The Energy Exchange has accounting and legal consultants that can explain how you can accomplish a 1031 Tax Free Exchange. If you have recently sold, or are about to sell a real estate property, contact your tax advisor or the following companies below to learn more about how oil and gas projects can reduce your taxes and increase the value of your portfolio.
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Tax Advantages of Oil and Gas Drilling
Congressional Incentives
Encourage Domestic Petroleum Development
Oil and Natural gas from domestic reserves helps to make our
country more energy self-sufficient by reducing our dependence
on foreign imports. In light of this, Congress has provided tax
incentives to stimulate domestic natural gas and oil production
financed by private sources. Drilling projects offer many tax
advantages and these benefits greatly enhance the economics.
These incentives are not "Loop Holes" -- they were placed
in the Tax Code by Congress to make participation in oil and gas
ventures one of the best tax advantaged investments.
Intangible Drilling Cost
Tax Deduction
The intangible expenditures of drilling (labor, chemicals,
mud, grease, etc.) are usually about (65 to 80%) of the
cost of a well. These expenditures are considered "Intangible
Drilling Cost (IDC)", which is 100% deductible during the
first year. For example, a $100,000 investment would yield
approximately $75,000 in tax deductions during the first year.
These deductions are available in the year the money was
invested, even if the well does not start drilling until
March 31 of the year following the contribution of capital.
(See Section 263 of the Tax Code.)
Tangible Drilling Cost Tax Deduction
Active vs. Passive Income
Small Producers Tax Exemption