When you think about where to invest your money, the first places that probably cross your mind are real estate or technology. So it might surprise you to hear that some experts are discussing the merits of investing in oil. One big selling point? The tax breaks.

We’re quite far past the days of hearing about oil tycoons, but that certainly doesn’t mean “black gold” has lost its value. Writing for Investopedia, Mark P. Cussen shares some tips for why you might want to consider the investment.

For one, the “intangible” costs associated with oil drilling are 100% deductible later in that year. And by intangible, they mean everything other than the drilling equipment. So necessities such as the cost of labor, or grease needed to keep the machines lubricated are totally exempt from taxation. And these intangibles comprise anywhere from 60-80% of the typical cost of drilling each well.

You might think that the investment in all that drilling equipment will still add up and be tough to manage, but the tangible costs of drilling are also 100% deductible. The only difference here, as opposed to the deduction for intangibles, is that with the tangible costs you have to allow them to depreciate over seven years. So you have to wait a while for the benefits, but they will be there.

Fred Hubler Chief Wealth Strategist for Creative Capital Wealth Management Group has been using these oil/gas investments for their clients for decades. “For people with large taxable income, they have a few choices to lower their taxes; make less money (no one wants to do that), give to charity, or invest in an oil/gas program that gives them a reduction off their income for ~70% of what they invest in the program.” 

Hubler continues, “the good oil and energy investment programs then give off distributions for 15-20 years. Two negatives on these programs is they are for accredited investors and your capital is nonrefundable. Investors get their money back in the tax savings and the distributions.”

The takeaway from this is that the United States is absolutely committed to incentivizing oil production due to its impact on supplying the country with energy. And these aren’t even the only tax breaks you can receive when investing in oil. So if you have been thinking about where to invest your money, maybe it is time you took a look at the benefits putting money into oil could yield.

To learn more about the advantages you could have from investing in oil, check out the article from Investopedia by clicking here.

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