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Energy assets have
depletion deduction, which have been referred to by the U.S. Supreme Court as
being "the single best business deduction" in the entire tax code. Better than
depreciation deductions - for two very important reasons:
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1. |
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Depletion deductions are unlimited to your cost basis. |
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2.
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Energy assets
are never subject to recapture after receiving a zero basis.
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Depreciation of course is
always subject to recapture and you can never depreciate a property for
more than you bought it for. For example: if you owned a fully
depreciated property with $400,000 free and clear and you exchange it to
a replacement property of equal value, how many new tax deductions would
you get? None. You will carried forward the same zero basis to the new
property.
If instead you exchange it into a Royalty Interest for the exact
same value, you'd get the annual 15% depletion deductions on 100% of the
Royalty income generated and never recapture - giving you more tax
savings on higher cash flow potential for probably twice the after tax
spendable income, and less capital risk! - What's
wrong with that?
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