Tax Smart Real Estate Investors Podcast
265. Breaking Down The Tax Benefits of Oil & Gas Investments for Real Estate Investors
Mar 19, 2024
Learn about the tax implications of oil & gas investments, how 1031 exchanges can benefit real estate investors, and the advantages of diversifying with oil & gas assets. Explore the potential for offsetting active income, navigating mineral rights and royalties for tax benefits, and maximizing tax advantages through passive losses and strategic investments.
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Quick takeaways
- Investing in oil & gas working interests offers tax benefits by allowing non-passive losses without material participation.
- Mineral rights investments generate ordinary income but can offset passive losses from other investments.
Deep dives
Tax Benefits of Investing in Working Interests in Oil and Gas
Investing in working interests in oil and gas provides unique tax benefits. Unlike royalty interests, working interests are considered active, not passive, under section 469, allowing for non-passive losses even without material participation. Investors must hold the interest directly, without limiting liability, and be prepared to bear potential losses. Deductions such as intangible drilling costs and tangible drilling costs offer substantial tax benefits, allowing for significant deductions in the year they are incurred.
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