Long-Term Wealth Generation
In the oil and gas sector,
depletion allowances offer a powerful tax benefit for investors in producing wells. This tax deduction acknowledges the natural decline of a well’s resources over time, allowing investors to recover the cost of the extracted reserves. There are two methods for calculating depletion: cost depletion, based on the actual cost of the investment, and percentage depletion, which allows a deduction of up to 15% of the gross income from oil and gas sales. For many investors, percentage depletion can provide a greater benefit as it is not limited to the original capital invested. This allowance effectively reduces taxable income year after year as the well produces, making it an attractive advantage for those seeking long-term wealth generation in the energy sector.