The oil and gas industry has long enjoyed various tax incentives and advantages to encourage investment and development. In 2020, major tax reforms were implemented that significantly changed the landscape. This article will analyze key tax advantages for oil and gas investments under the new rules in 2020.
Accelerated depreciation rules boost near-term deductions
One of the biggest tax advantages in 2020 comes from accelerated depreciation rules. The Tax Cuts and Jobs Act allows immediate expensing of certain capital investments through bonus depreciation. This enables rapid recovery of costs and increased near-term deductions for investors.
Reduced tax rates on business income improve returns
In addition to large upfront deductions, the corporate tax rate was reduced to 21% under the reforms in 2020. This lowers the tax burden on oil and gas income and improves after-tax returns for investors compared to previous years.
Amortization of geological costs retains key incentive
While intangible drilling costs can no longer be fully expensed, geological and geophysical amortization rules still allow recovery over 2-7 years depending on well type. This preserves incentives for oil and gas exploration and development activities.
Refundability expands value of credits and loss deductions
Making more tax credits refundable and removing loss deduction limits opens up additional tax savings opportunities. Investors can now fully utilize credits and deductions to lower tax liability or even potentially generate tax refunds.
In summary, major reforms in 2020 introduced significant tax advantages for oil and gas investments, with accelerated deductions, lower rates, continued amortization incentives, and increased refundability rules boosting benefits.