Ep 143 - Advanced Oil & Gas Tax Strategies (Exclusive Client Workshop Preview!)

We share an exclusive client workshop on advanced oil and gas tax planning and how the tax code can turn a passive energy investment into a powerful deduction strategy. We lay out how IDC and depletion work, where the real risks live, and how to coordinate oil and gas with real estate, capital gains, and retirement moves.

• why working interest oil and gas can create non-passive losses that offset W-2 income
• how intangible drilling costs drive large first-year deductions and why timing matters
• what depletion deduction does for ongoing cash flow tax efficiency
• differences between investing with an operator, a diversified fund, or royalty rights
• oil and gas versus real estate tradeoffs on appreciation, leverage, and tax control
• stacking cost segregation losses with oil and gas profits for smoother tax outcomes
• using oil and gas planning for capital gains mitigation and potential 1031 exchange paths
• retirement planning ideas including self-directed IRA considerations and Roth conversion tax math
• gifting strategies for estate planning and income shifting to family members
• qualified opportunity zone fund concepts tied to oil and gas and why the exit can matter
• how we model after-tax ROI so decisions are based on math, not hype

*If you want to see how any of these strategies may apply to you, go to http://www.prosperlcpa.com/apply  and I'll personally send you a video illustrating what's possible.

Transcript

Why Share This Workshop

SPEAKER_01 0:00

We all know oil and gas has incredible tax advantages that can reduce your income and offset even your W-2. And if you don't know about it, you can watch some of my other videos that I'll refer you to later. But when you really dive deep and to explore the tax treatment of oil and gas investing and how you can do advanced planning and time how other income sources interact with it and maybe shift it into other parties. And when you consider your whole dynamic, your current and your future income income sources, passive income sources, family dynamics, you can take those tax benefits and put what I would say gasoline on the fire to create long-term wealth and even greater tax advantage cash flow in the future. So I didn't have enough time to record a weekly podcast this week. It is filing season, but I wanted to keep this consistent. So I thought I would give you a special little privilege. I'm not sure I want to keep this recording up for too long, uh, because I do like to have exclusivity for our client workshops. But I am I would like to introduce you to a client workshop that we did on advanced tax reduction planning for oil and gas. And pay close attention, you're gonna get ideas that you've never heard of before. Even if you love oil and gas, you've been doing it for years, I guarantee you you're gonna learn something new. So listen up now. Before we get started, just remember you don't want to do this alone. And I uh first off, if you're not working with us, is it's unlikely that you're working with people who understand all the different features that we're exploring in this conversation. And if you need any help at any time to see how this fits into your picture or any of the other advanced or more advanced tax reduction strategies that we do for our clients, go to prosperoca.com slash apply. That's prosperwithanlcpa.com. So now this is the first time I've ever I've ever done this. I'm gonna give you access to the recordings of one of our exclusive client workshops. I really hope you enjoy it. I think a lot of you probably heard of advanced oil of all these cool things that you can do with oil and gas. There's all these advanced strategies here that you and you know, I'm sure at a high level you've heard about some things, but today is where we dive deeper, and we're not gonna talk about the investments very much as far as profitability. We are never going to claim to be investment advisors. We'll connect to you with people that are reputable, but we cannot advise. We are not authorized to advise. We do not pretend like we're authorized to advise on any particular investments. But and the reason why is that there is enough complexities in the tax code to keep us busy. So we are gonna really be keying in on the tax code. There will be absolutely nothing to sell you, no third-party vendors. This is all about your understanding and education, and you're gonna come away with this with a profound and deep understanding that is gonna be rare. You will be more knowledgeable in oil and gas tax planning strategies than about 99.9% of all tax professionals when you get through this. So we're very excited to share with you some insider ideas here. Now, we're gonna start off with the basics here, just to refresh your memory in case you've never been educated on this topics, this topic before of understanding why oil and gas and some high-level benefits. Then we're gonna talk a little more about the types of oil and gas investments, high level here, because we're not advising you on investments. Then we're gonna talk about the tax treatments of the profits and the losses. We're gonna talk about oil and gas versus real estate for tax savings because we have a lot of real estate investors out there. We're gonna talk about stacking and combining oil and gas with real estate and the tax opportunities that that creates. Oil and gas for capital gains planning, retirement account planning, retirement planning, other advanced strategies here and how to project savings. And at the end, you are gonna have access to the work paper that I use. Not only is it gonna help you project the tax savings from your investments, but it's also gonna help you understand what is the return on investments from this oil and gas. So after when once you've when you factor in the return on investment based on the projections provided by whatever capital raiser, when you factor in the tax savings, you're gonna find that the oil and gas investment, and this is basically what we've seen with lots of different uh products that you know that our clients are investing in, especially as you get in a higher and higher bracket, the tax implications of your investment strategy become more and more applicable. If you're only in a 10-15% bracket, you're mostly thinking about profit. But when you can have measurable tax savings stacking on top of the profit, and you're in a 30, 37.5% tax bracket, and for some of you, this could save you is essentially chipping away at potentially a 50% tax bracket, and I'll show you how. Then all of a sudden, the tax implications and savings of oil and gas start to far eclipse those that you will see of other investment strategies. Most of you uh we see a lot of people doing index funds and mutual fund investments, and those are all fine and dandy. They're wonderful, you still have favorable cap gains plannings, but the tax savings that you're gonna see here are so good that it's time that you some of you reconsider your traditional means of just having Fidelity Mutual throw it into a bunch of stocks and being a little more proactive here, taking advantage of the tax savings and tax reduction you will get from cash flow positive, profitable oil and gas. Nothing against Fidelity Mutual, by the way. I I mean I think they own Robin Hood, but, anyways, let's get into the let's get into things here. So um, oh, I gotta let some more people here. Uh okay, so why oil and gas high level? The reason why folks like oil and gas, you have tax reduction. You're investing in something that reduces your taxes, diversification of your portfolio, high velocity of cash. So, what we owe what we have found other people present to us is that within 18 months, you are made whole from your investment, meaning your your return of your cash in the form of cash flow distributions. We typically see a monthly distribution plus the tax savings. Essentially, you get your money back within 18 months. Obviously, that varies based on the investment and what tax bracket you're in. But imagine you put 100 in, you that$100,000 is returned to you within 18 months from the combination of the tax savings and your profits from the investment. And then after 18 months, now you're up. So it's as opposed to other investments where we're maybe unless you know, obviously, you can do cash out refines from real estate and other ways to get your capital back, but a lot of times you're shelling out a lot of money for these investment strategies. And while the ROI and the growth is good, you still are compromising a lot of your liquidity and you're not really seeing a lot of cash from this investment for some time. And then finally, for most of you here, unless you want to start, you know, drilling into your own, you know, setting up your own rigs and putting on the hard hats, which I don't think you're gonna do because most of our clients really don't have an interest in in immersing themselves in that industry, it's gonna be a truly passive investment. So, all these rules around you know, doing short-term rental investing, and/or should I invest in long-term rentals and get rep status for this year? And can I pull this off? Can I pass a 50% test? Can I get to 750 hours? Do these hours qualify? None of that matters. When you invest in your working interest in oil and gas and it's properly structured, you will have a tax reduction. You are reducing your taxes, and you are not putting in any additional labor into that investment. So, and by the way, this is really popular for our folks who maybe they're seduced by you know all of the uh opportunities with short-term rentals. They saw some you know, some reels and highlights on Instagram. They get super excited and they join the mastermind. And then two years in, they realize that you know, even though the tax savings are good, they don't like being landlords and being getting calls on Sunday afternoons because an HVAC is down and the internet is down, and it's not worth it to materially participate where they can make a half a million or whatever they're making at their day jobs. So a lot of folks, when they realize that they love financial freedom and tax reduction and passive income, but do not love being a landlord, nor do they have the time for it, or they have another child or whatever, a lot of them are starting to pivot into these truly passive investments that give you similar tax benefits and tax reduction and cash flow as real estate. So the types of investments that we see is you can have a working interest uh directly into an operator. So we do have uh one provider who will present a series of wells. So a client will invest maybe a hundred thousand or something like that into a collection of one or two or three wells. We have seen that, and that is a higher risk type of opportunity where we've seen them you get more of an intangible drilling cost deduction. You're you're taking care, you get more of a tax incentive because you're taking more and more risk. So you're investing directly in the operator in one well or a handful of wells. The upside can be insanely good. I've seen some I saw some returns on some of these investments and thought, like, what am I doing here? Like this guy's making so much money doing nothing and just putting his money into this fund and get and he's reducing his taxes. Um, but the downside is greater too. You're taking on more risk. So if a well gets stalled, then none of none of the money's coming in, so you're taking a higher risk. Um, if you are more risk-adverse, we see a lot of people investing a working interest into a fund where you're investing across maybe 80 or 90 wells or whatever it is, but now you're hedging against the risk of anything getting delayed. Now, a lot of you who haven't taken the time to learn about this stuff are gonna be scared off by oil and gas because you're gonna say, oh, well, what if there's no oil? You have a dry well. That's highly improbable with the technology that they have access to, but there still is risk of less profit or lower profitability or delays or other complications. And there's risk with every investment you'll ever put your money into, um, unless you're doing like a treasury bond of some sort. But, anyways, this is a way where you're gonna reduce your risk and spread your investment across multiple projects, and um, then there is an investment into royalty rights, and this is just instead of working interest into the drilling of the oil and you're sharing in the profits of the sale of the barrels of oil, you're owning the land and you are renting out the land, so you just get rent revenue from the other companies that are drilling. Um, uh side note, you can watch on Amazon Prime, there's a show called Landman that talks a lot about this type of activity, which is really cool, Billy Bob Thornton. So you might I don't think that any of our providers are doing what Billy Bob is doing, but man is entertaining. Um, but, anyways, so you got the royalty rights as well. No intangible drilling cost deductions here because there's not enough risk. So this is just a truly passive investment. Occasionally we'll see some folks invest in a in a fund that combines some royalty rights and working interests, and sometimes you'll invest into a fund that has some currently working wells. So let's say across that portfolio, there are some wells that are already active, so they've already incurred the drilling costs, so you don't see as much of a tax deduction there. And you're gonna so there's less risk because it's already pumping out oil, you get less of a tax savings, but more guaranteed cash flow. Tax treatments, okay. Let's talk about the losses, and this is why people are so attracted to oil and gas investing, and why it is super cool. The losses are non-passive if you have a working interest investment. So if we invest into one of these partnerships that drills for oil, the losses that we incur can offset all our sources of income. We want to get those non-passive losses, they're the most versatile. Because your capital losses are capped, you know, your your passive losses only offset other passive income. The non-passive losses, that's like your holy grail. That's really what you want to get here. The non-passive losses are so valuable. We want to get to those. There's no need for material participation, as I discussed earlier. You get those losses and you use them. They can offset any type of income, capital gains, business income, W-2, interest income, all these different sources of income you can offset with your oil and gas. There's there is something to consider for some of you. This has not really been a huge factor just from what we've seen, but there's something called the excess business loss limitation, which limits how much of a loss you can take from a business against non-business activity. So, for what it means for most of you guys in plain English, if you have a W 2 income, the most losses you can take is going to be either 310 or 626. In 2020, I think that's in 2024. This number always changes. So if you're watching this after uh 2025, just Google that number. It probably hasn't changed that much, but there is a limitation on how much you can use to offset your W-2. Any unused losses will carry forward and offset future W-2 income. Um, now typically this loss will only offset your federal taxes because the oil and gas fund is all oftentimes going to be in like Texas. And if you live in North Carolina, the activity is domicile to Texas and will not offset your California taxes. Sorry, Natalie. Uh, but we're we're taking care of that. Um, still, um, but but here's a cool thing, and uh especially for you guys in Tennessee where the um franchise and excise tax makes it really hard to do S Corps, you can offset your Social Security and Medicare taxes with oil and gas investing. So this is this is really cool, and very few people realize this. But any chance we can get, this is a really cool idea here because on your first now, this is a number, this is a number that also continually changes. So in 2025, approximately your first$165,000, not only are you paying your federal taxes, but you're also paying your FICA tax at 15.3% on that first amount. So if we can offset your federal taxes with oil and gas, not only are we chipping away at your taxes, let's say that you have some self-employment income tax at 30%. Not only do we get this tax tax, we're cutting away your taxes being taxed at 30%, we're chipping away the taxes being taxed at 15.3%. So imagine you know, every deduction reduces your taxes by 45%, you know, 46.3%, or whatever it is, this can get really exciting and be very impactful for some of you guys who can't take advantage of S-corps. So really cool stuff here. Um and this is something you'll you'll rarely hear people realize or acknowledge here. So if you have some some 1099s and you're a high income earner and you it doesn't make sense to do um an S-corp, uh you can still this may offset because you're already paid out your Social Security, it'll still give you an extra 3.8% tax deduction on top of your federal to pay for that Medicare tax. So still really cool stuff there. Now, when you have profits, so let's say in year two you don't reinvest and you have profits. Those profits are passive, is the profits are passive income. You don't pay FICA, no Social Security and Medicare taxes. So you're still taxed more favorably than you would be from your W-2 job or self-employment income where you do have to pay those FICA taxes. Typically, 15% of the revenue is offset by your depletion deduction. So let's say we we have$100,000 in revenue, we get a$15,000 depletion tax deduction. That that is a paper loss. It's not like you're spending or losing, it's uh spending any more cash to get that deduction. So imagine you know, we have a cash, we have$100,000 of revenue, we have maybe$10,000 of additional deductions, but we also have a 15% depletion deduction. Instead of paying taxes on$90,000, you're paying taxes on$75,000. And still you're getting the cash flow of a$90,000 investment. So really cool tax advantages there. Um you can offset the future profit by reinvesting and get getting more of what we call intangible drilling cost deductions. Now, let me backtrack a little bit here, just so you guys don't get too lost if you haven't heard me talk about oil and gas in the past. The reason why we're able to create such great losses is because there's a tax incentive that allows us to write off all of these costs meant to set up the fund and get the the well up in operation. We call these intangible drilling costs, and we see that amount be equivalent from anywhere from 60 to 100% of the money you put into the fund. So imagine you invest$100,000, the 80% is deductible for intangible drilling costs, you get an$80,000 tax deduction in that scenario. And before you invest with all these guys, they usually can project to you what that IDC deduction is going to be, so you guys don't get lost. And of course, you'll have the access to the recording to re-listen to this stuff because I'm throwing a lot at you here. So um you can also offset your future profits by those by other non-passive losses. Again, that's like our holy grail of losses. Any non-passive losses can offset just about anything, so they're super helpful, and you still have preferential state tax treatment. So let's say, you know, obviously, you let's say you live in California, well, like you're a little bummed out that you can't use these losses to offset your income. But on the plus side, you are gonna still have this income statement that has all these losses. So when California says, hey, we're gonna take a piece of the pie from your oil and gas, and then it looks at the income statement and they see a negative income amount. So even though you're getting all of this cash flow, your your depletion deduction and your IDC deduction is still gonna offset the cash flow. So hopefully you're still not paying any taxes on the cash flow in California. Now, every state is gonna be a little different in how they look at everything. So, you know, there's 50 states and there may be some nuances, but generally speaking, here you still have an opportunity, even if you can't reduce your state taxes, to have cash flow coming in that's being untaxed by the state. So not too bad. And if you do have a positive income uh from the oil and gas investments, it is taxed at your marginal rate as opposed to the capital gains or dividend rates. That's not the case. You're taxed at your federal marginal rate. Still, you see lots of advantages because of all the losses we can create. And most people do this to create losses. Now, just continue. Put your questions in the chats. Uh, so if you want to know any more detail, and I encourage you guys if you have any questions at all, uh, because this will be helpful to the people watching the recording. So let's talk about oil and gas versus real estate. Because I know a lot of you guys are deeply invested into real estate and we still love real estate. Truly passive. That's gonna go to oil and gas here. Um, if we're talking about uh high appreciation, you're gonna see more advantages from the real estate investing, the really strong EZIs. Like some people invest in real estate and it's never cash flow, but it makes a lot of sense because it appreciates they do refines and they have capital gains that they don't pay taxes on through 1031s. That's gonna be more of the real estate advantage here. Now, for um oil and gas, one of the benefits here is you don't stress as much about interest rates. You can use leverage in real estate, so you're using other people's money to invest. That's not as common with oil and gas. You can re-fi and take your money out, that's more of a real estate advantage. And when you re-fi on your and take out more loans and equity on your real estate, you don't pay taxes on it, that's more of a real estate advantage. Um, real estate, you don't need to be accredited investor. We're likely to see more velocity of cash on the investments in oil and gas, but obviously every investment can be different. And again, real estate more appreciated. Benefits here. Now, let's talk about for taxes here. Unlimited write-offs. Real estate's going to have the edge on this. So when you invest in real estate, you have the opportunity now to do all those foundational write-off strategies. You know, that may be the Augusta rule or hiring your kids or writing off your meals in your travel. Those opportunities are created with the real estate. When you're passively invested in oil and gas, it's unlikely you're going to see very much at all of any of that stuff to create those write-offs. Um losing. Now, here's a really cool thing. Again, when you have a real estate loss, it will not offset your ordinary income. It will not offset your FICA. But oil and gas will. So in a few rare circumstances, this is a nice little edge here. Control on the timing of deductions. So we have a little more flexibility with real estate. We can elect in and out of bonus. We can time the cost eggs for optimal savings. You don't have that much control over how you report and decide on the IDC deductions with oil and gas. You really can just control when you put the money in. For real estate, here's a downside: bonus depreciation phase outs. So now we're down to 40%, which is reducing the benefits of these cost eggs. So we're not writing off nearly as much as we used to from these cost segregation studies, but we still get all the benefits from IDC deductions on oil and gas. So the oil and gas has an edge in this conversation. And right now it is January of 25. We might see this change or temporarily change with some upcoming tax law. Depletion deduction to offset your cash flow. That's an oil and gas benefit. Both of these, you pay no FICA taxes on the gains and profits, positive, passive income, and both of them, again, no FICA. QBI deduction, qualified business income tax deduction, is more applicable to real estate. Not as much of a variable because most of you guys are going to create losses with your real estate. And the losses are non-passive always with real estate. I mean, always with oil and gas, but with real estate, you need to have certain uh certain attributes in place, like real estate professional or short-term rentals, and both you need material participation. So you got to jump through more hoops to use your losses with the real estate. All right. So let's talk about how we can combine oil and gas investing with real estate for optimal tax savings here. So it's all about in this situation here, if we're looking to diversify and stack these ideas together, let's talk about how this comes together. Your real estate investment losses can offset your oil and gas profits. Now we all know that real estate losses are easy to create because you got your depreciation. You can maximize it with cost segregation studies. So let's say you don't have rep status or short-term rentals, you have access to all this depreciation, which is nice that you're not paying any taxes on your rent revenue, but you're thinking to yourself, man, I wish I could take this a little further. I see all these other people doing these cost eggs. Well, what can I do? Well, if you're investing in oil and gas, and then one year you decide, or let's say your business is down or you need more cash, and let's say you're not putting any more money into this oil and gas fund, suddenly you don't have any more intangible drilling cost deductions. So let's say you have a couple hundred thousand in the oil and gas and it produces a profit of maybe eighty thousand dollars. Well, instead of paying taxes on it, we can look at your portfolio and we can say, hey, remember that property right there? Let's do a cost seg on it this year. And the losses can offset your profits in the oil and gas. So that's a really cool way to stack these kind of use. Now we can use our passive losses to offset the passive income from the real estate. Here's another cool thing that you're not going to hear from a lot of advisors is you actually can 1031 exchange between your interest in oil and gas and real estate. Now, this is really cool here. So let's say you know you have a capital gain from real estate, you can't find any good investment vehicles, you can roll that into the oil and gas. Now, if you're thinking about this and this is exciting to you, and I think it should be, and I think a really cool thing here is that you you know you don't have to do the cost eggs, you can do the I get the IDCs, or maybe some of you guys are you want to get more losses and you have this multifamily that you're just tired of using and it doesn't give you any benefits, so you're gonna 1031 into it. Be careful here because you have to exchange into property of equal or greater value. And with real estate, a lot of times you've borrowed a lot of money. So you sell a property for a million dollars, but you've borrowed maybe you know two two hundred thousand dollars of that, you're only gonna get eight hundred thousand dollars on the trade on the disposition, and you got a 1031 into something of equal or greater value. So now you're gonna have to put your own cash into the 1031 to mitigate the cap gain. So um you just this is a this is a more complex transaction. Just you don't have to know all the details, guys. Just talk to us before you consider this. Just know you can 1031 from oil and gas into real estate and investing and real estate investing into oil and gas. It'll be more easier for you to in to 1031. Um actually, in neither situations, really, is it going to be very easy, but you need a little bit more capital. Um, another idea, and this is a simpler idea, is you can offset your capital gains with oil and gas investing. So, and this is really cool because and this is not just for real estate. So, when you have a capital gains event, and let's say let's use an example for stocks. So, let's say we have$50,000 in Apple stock, we sell for$100,000. We have a capital gain of$50,000, but$100,000 hits our bank account because we get our principal, right? If we invest$100,000 into oil and gas at an 80% and we get an 80% intangible drilling cost deduction, we get an$80,000 tax deduction from the oil and gas. So the overall impact on this transaction is you're actually reducing your taxes. You have a$50,000 cap gain, and then you have an eighty thousand dollar loss that offsets not just your cap gain, but your ordinary income. So this is a really cool idea of mitigating capital gains. And you can do the same for other types for real estate as well. Um, you can, and then here's this an idea. If you like this idea, you don't want to sell your real estate. Well, you can do a cash out refi, refinance your real estate. That may not be as sexy, depending on what tax what your current interest rate is. But if it makes sense to refi uh and take out more equity, take out more of a loan against your real estate, you can put that into your oil and gas. Yes, you're gonna have more interest costs, but now you have cash flow from the oil and gas, and you have tax reduction from the oil and gas investment. So this might make a lot of sense for some of you guys. Great tax-free way to get capital. Now let's talk about oil and gas for retirement account planning and just general retirement account, retirement planning. This is really a great opportunity to smoothen out your tax brackets, even if you're not retiring. Let's say we have volatile income and your income's going up and down and up and down. What I what we want to do is we you know, overall, we want to shift our income into the low bracket years and our expenses into the high bracket years. So when you're in a high bracket, you put the money into oil and gas. If you're in a low bracket, you can see the returns from your oil and gas. And obviously, some of it will be offset by your depletion. However, you will still, you're, you know, let's say you're down to a 20% tax bracket, you're gonna be taxed at a lower bracket. So not only that, but eventually when you retire and you're gonna be living off your investments and other assets, you're eventually most likely to drop into a lower bracket. So part of your retirement strategy can simply be in these high-income earning years to accumulate lots of investments into the oil and gas that reduce your taxes, and as the money comes in, you gradually move into that investor role, that passive sit back and collect the cash, the mailbox money type of role with your finances. Now, the thing that I like about this is compared to things like 401ks and IRAs, you're gonna have access to the funds a lot faster with less restrictions like required minimum distributions and waiting until you're 59 and a half to take to make it take any money out, size from borrowing or paying penalties. So here's a way where you can actually not only are you reducing your taxes like when you put them in as you would with a 401k or an IRA, but you also can use the cash before you hit age 59 and a half. And you and then another thing here, now this is a more advanced strategy, and talk to us before you do this because you really need the right people behind you to do this, but you can invest with a self-directed IRA. And why would you do this? Well, obviously, the taxes you when you put your money into the IRA or 401k, the taxes are deferred, so you're reducing your taxes. Now, the intangible drilling cost deduction will not reduce your taxes because they'll roll into the retirement account. So you might be wondering to yourself, why would we really want to do this? And the reason why people like to do this is because there are some tax advantages that will allow you to mitigate the taxation on a Roth conversion. So think about this. You have a tax-deferred IRA or 401k. Eventually, you're gonna pay taxes on it, whether you take it out as a distribution, if you take it out early and pay a penalty, or you roll it into a Roth. We love the opportunity, if it makes sense, to roll it into the Roth because now it grows tax-free in the Roth, and you take the income is untaxed, and then you take the money out tax-free. Now, the challenge is getting it into that Roth creates a tax liability. You're recognizing the income at that moment. So, what we can do here is let's go to$100,000. When we move the typical funds, let's say it's just a typical investment amount of$100,000 from a IRA to a Roth, you would have a taxable income of$100,000. Well, you pay taxes on that amount. And if you're in a low bracket, maybe it makes sense to do that. But let's say we're in a high bracket, we don't want to pay taxes on that. Well, you know, let's say we're in a 30% bracket, we don't want to pay 30 grand in taxes on that amount because then we only have$70,000 growing tax-free. Um now, what if, however, we take this money here and we invest it in oil and gas? Well, this is what's gonna happen, and this is really cool. When you put the money into this oil and gas investment, and they excavate the land, they drill, they they they they dig the holes into the grand the into the ground and they extract the oil and they set up all the equipment, and they've really done a lot of work on this land. What's gonna happen is if you time it properly and you'll work with a specialist who understands how this particular section of the tax code investment applies to this strategy. At the time that you convert the investment when you move it out of the 401k or IRA into the Roth, they revalue the asset. What is the value of this thing that you're moving into the Roth? And because all this work has been done onto the land, it reduces the value of the overall investment. I've seen this done with real estate as well, by the way. I've seen someone reduce 60% of the taxation on this transaction. So imagine putting$100,000 into real estate, you move it into the Roth, you only pay$40,000 in taxes, but you have$100,000 investment growing tax-free in the Roth. Now, for the oil and gas this strategy, I've heard of it offsetting anywhere from 30 to 50%. So now we're eliminating 50% of the Roth conversion, and you're eventually going to be paying taxes. We're eliminating 50% of those taxes up front, and then we grow it tax-free and we take the money out tax-free. Just think about how much, if we can save an additional 50% of the taxes there. So instead of only collecting seven in that earlier example of only taking 70 of the 100,000, if we can add an extra 15,000 on top of that, think about what that 15,000 is going to do when it grows and compounds at 10%, compounded annually tax-free year after year after year. It's eventually going to be hundreds of thousands of dollars of wealth creation with the strategy. So the tax advantages are really interesting here. Um, and then gifting for estate planning. So when you the the interesting thing here is similarly with the retirement accounts, is when you gift something like this and the value is diminished, that means the value of the gift is lower. Now, there's something called uh lifetime exclusion where essentially a lot of people for estate planning, what they're trying to do is they gift out a certain portion of their wealth year after year because a certain amount of gifts don't have to be reported for taxes. So essentially, you're minimizing the amount that is going to be subject to estate taxes, and that amount is at like I think five to six million and it's expected to be cut in half with the um phase out of Tax Cut and Jobs Act, as Thaniel is doing his master's thesis on, right? But we also might see it go back up. So we don't know how important this is to you guys. And um, again, this is January of 2025. And if you talk to us after legislation in April, uh we'll we'll see how relevant that idea is to you based on the value of the your potential estate. But it is still a really interesting idea for estate planning. Uh okay, let's go into gifting for income shifting. Again, this is a really cool opportunity that a lot of people are overlooking here. If you gift an asset such as this, you do not have to a lot of times when you take a business asset and you're not using it in your business, there's a recapture and you you lose your prior loss, your prior depreciation. That's not the case with gifting oil and gas. So, what some people will do is instead of let's say uh you want to pay your son or let's say you want to support your mom and you want them to have an extra twenty thousand dollars a year, and you project that the oil and gas is gonna have an ROI of 20%. If you just give your mom$20,000 a year, that's not gonna create any tax savings. You say, okay, I'll hire my mom. Well, if you hire her, now you have FICA taxes, fifty at least 15% Medicare and Social Security. So that's gonna trigger taxes on your mom. Now, what if I invest$100,000 into a well for oil and gas? And let's go back to this. Let's say I get a$90,000 tax deduction from the intangible drilling costs in year one. I get a$90,000, I reduce my taxes by$90,000. And then in the following year, I gift this my interest into oil and gas to my mom. My mom now has$100,000 in value of an oil and gas investment. And this can now let's say she gets a 20% return on investment. So now she has$20,000 a year hitting her account, and it's a tax-advantaged investment vehicle where she's not paying taxes on all the revenue because of the depletion deduction. So it's a really cool strategy for income shifting. And I really like this for children in college. And one of the reasons why is because you can get what's called the American Opportunity Tax Credit. You need at least some taxable income to claim this credit if you're in college and it helps pay for your educational expenses. I don't remember the exact amount. It should be around three to five thousand dollars a year for four years. Uh, if you make too much, some of sometimes parents will qualify, but if you make too much, you can't get it. And if your kid makes too little, you can't get it. So here's a good way to activate that. So you can activate the credit and you can offset the first$14,000 of that amount for standard deduction. So think about how much opportunities you're creating here with like the first$20,000 you could shift to your children with some creative ways of giving, instead of just giving them cash, you can be a little more proactive here by investing into the oil and gas and then giving them the interest uh in that partnership. And then finally, we have oil and gas qualified opportunities on funds. I'm probably gonna release an additional resource for you guys on this topic. I think these this is another opportunity that a lot of people overlook because of the complexities, or they're just not as shiny and flashy as you know the Augusta rule or a short-term rental loophole that you're gonna see on social media. But this could potentially create millions of dollars of untaxed wealth if you have a capital gains event. Could be from real estate, it could be from anything, it could be from an RSU, a stock, even if you let's say you sell your house for more than half a million in profit, you put your money into a qualified opportunity zone fund. Now, there used to be a step-up basis, and again, this is January of 25th, so we may see additional opportunities with a step-up basis. I'm probably gonna wait until April to post the analysis of QOZs because I think they're expected to sunset but come back and they may change. But essentially, what you can do with this is you defer your taxes by investing in oil and gas. We have a hundred thousand cap gain, we invested in oil and gas. We don't recognize taxes until December 2026 when oil and gas, sorry, when QOZs are phased out. So we're deferring it until 26. That's not that exciting, but it's still deferral, time value of money. At the time that you recognize the capital gains, again, because of the revaluation of the land, we would expect to offset 30% of the cap gains. So now instead of paying cap gains on$100,000, you're paying cap gains on tax on$70,000 a gain. So we've wiped out some of the capital gains and we've deferred it. And we might even see greater treatment of this based on potential revisions in the tax, the updated TCJA Tax Cut and Jobs Act in a couple of months. But the really cool thing here, I like, is on the exits. Because they're gonna what we see here is they reinvest all the earnings from this QOZ into more and more wells, and they get more and more intangible drilling cost deductions. Now, because of the structure of the fund, you're not gonna be able to use the deductions to offset your income. But here's what you're gonna see the deductions offset your income from the investment. So you let's say you see a six to eight percent, not an insanely high amount, but an ROI of six to eight percent that's completely untaxed because of your your IDC deductions. But the big kicker here is because you're reinvesting into all these assets, you're accumulating more and more and more wells, and you're just reinvesting and reinvesting. What you're really doing here is you're building up a reserve of all these different oil and gas wells that are going to be producing and producing and producing. And as you expand this portfolio over 10 years, because you got to have hold a qualified opportunity zone fund for 10 years, your exit is completely untaxed. So it's all about yes, you have tax advantage and untaxed uh cap um profits from the oil and gas, but it's not that much. But the exit here can be incredible, and you don't pay taxes on any of it. So a lot of people will call a qualified opportunity zone fund the equivalent to a supercharged Roth IRA because there's no limits how much you can put into it, and you pay no taxes on the gain. So oil and gas is one of those structures that is gonna allow for some cash flow, reduction of capital gains, deferral of capital gains, and tax-free exit. So this is, and this is, you know, we've seen people do this with business exits and all sorts of things like that. It's it's a little bit of a fancy strategy. You don't see a lot of people talking about it, but certainly this is one of the many tools in our arsenal. And if this is appropriate for you, and I don't expect you to know this until you've had a thorough conversation with us and our resources, but this is just another really exciting. That we can do when you fully explore all the opportunities and tax reduction savings strategies with oil and gas investing. So a lot of cool things, obviously, that you can do here. Now what I want to share with you is a template I created to help you. And you're gonna have the recording in the school library when I post this, you'll have access to this template. This is gonna illustrate how we can kind of evaluate what uh what our after-tax ROI is here. So all the the yellow is what we're gonna fill out here. So in this example here, we let's say we invest$100,000 into um an oil and gas project here. Now, assuming that your income is gonna be comparable to the prior year, if not, you might want to do some research on that. And honestly, we get pretty good estimates from Chat GPT, and also consider the fact that we can only offset federal, so we're not looking at state. So let's say we put in$100,000, our taxable income from the prior year was 100 was five half a million, but we paid$150,000 in taxes. So we're in a 30% federal tax bracket. And let's say we talked to the provider and we're in an 80%, we're gonna write off 80% of uh for intangible drilling costs. And let's say we're expecting$10,000 of cash on this transaction as well. So$10,000 comes in towards the end when they actually start selling some of the oil and gas. So the tax savings from the intangible drilling cost deduction here, we multiply 30% times the 80% intangible drilling cost times the investment amount. Let's say that now the total tax this amount is taxable. It might be reduced by depletion, but trying to keep things simple as possible, although this is a complex topic. Um, let's say it's$10,000. So our total tax reduction is$21,000. Now let's look at our after-tax return on investment here. So we our our opportunities are we have the$10,000 of cash flow and the$21,000 of tax savings. That's like a 31% return on investment. That is a lot higher than what you're gonna see in the stock market. And you can count on, you know, while the stock market is valid is volatile, you can always count on the tax savings being there. The law is unlikely to change. The IDC deductions have been in place since about 1917. This is not a loophole, this is an incentive to encourage drilling created by the federal government to help provide energy. There's certain things the government wants us to do, and that is to hire people, invest in real estate, and produce energy. That's why we also have the solar strategies that we presented in our library as well. So this is really neat. Now let's say we have someone in a higher bracket here. So let's say we're at a million, we make a million dollars, and let's say then we invest 200,000, and now we're in a tax bracket of 37.5%. Let me move a little decibel here, and let's say we have a 90% deduction here, and let's say we still get$10,000. Well, our tax savings from intangible drilling cost deduction is now$67,500, and now our total tax reduction is$63,750, and now our return on investment is 37%. So you can see here as you get in higher brackets, this becomes a more and more valuable investment. And is one of the best ROIs we'll find for an investment vehicle. But you know what? There are there are things that give you greater ROIs, and those are the really tax-efficient things that we show you, like charitable land donations where you have like 150, 200, the solar, 100$200,000 ROIs, but still when you think about what you want to invest in here, here's how you want to look at this from a mathematical perspective. First, you do the low-hanging fruit, like the cost segregation studies. That's a no-brainer if you have real estate. Then you, if if it makes sense, if you could do a charitable land donation where you're doubling your money in year one, that's gonna eclipse the benefits of the oil and gas. But the cash flow isn't nearly as good. But here's the thing all these other things that we're showing you, the charitable strategies and charitable trusts and preservation easements, that's gonna create significant tax savings. And that's gonna allow you to buy more oil and gas that gives you really good profits now. Obviously, we can't promise anything, but you can justify investing into this thing not only for the tax savings, but really good profits. So you do these more sophisticated vehicles to free up capital to invest into the oil and gas, which gives you access to even more cash flow and more tax reduction. So you can see how if we stack all these ideas on top of each other, we're creating and compounding your wealth and really maximizing tax savings. So, really cool ideas here. And you know, what I want you guys to at least consider this in your investment decision and in the mix of things you're looking at, especially if you guys love the idea of reducing your taxes and getting passive income, but you're burnt out landlords and you really want to you're looking for a place to deploy your cash. So, really cool stuff here. And um, you know, if you haven't looked at this yet, this is and and you have some cash before you look at the stock market and join the masses just putting money into the index funds, which is fine. This should really be considered because of the tax advantages associated with the investments. All right, so uh I hope hopefully I didn't overwhelm you guys with too much um jargon and technical details here, but I really wanted to give you guys some access to things that you're not gonna really find anywhere else. Uh, do you does anybody have any questions?

SPEAKER_02 50:48

All right. Yes.

SPEAKER_03 50:51

So, Mark, um, you work with a few pro I guess we call them providers or whoever. Um so is it for us to reach out to like three to see which category they are in? Like you said, you know, working directly with the operator or um investing in a fund or royalty rights. So are we supposed to vet out which one we want with some of that list that you gave us?

SPEAKER_01 51:25

Shoot me an email. Um, and you know, let's talk so right. So, you know, a lot of this is dependent on, you know, you're eventually gonna have to decide who you want to work with, right? And we'll make the introductions and we'll help you out with doing some of the tax analysis and understanding the tax implications. But essentially, um, we're gonna we're gonna introduce you to people who we know like and trust, and then you know, you get a lot of the times they're gonna have different projects coming available. Sometimes they don't have projects available, so then you know you're gonna have to make the final call on on who you invest in.

SPEAKER_02 52:07

Yeah.

SPEAKER_00 52:08

We we invested with two of those guys. Um, and uh the the one guy, RT. I mean, we already like we we invested like in December, and I already got a check in the mail for the first you know, disbursement. So uh I mean it's so rampant because like it like that project was like a 12-wheel project, and they were like they had like three wells completed and they're like move you know moving down the line, and um, which is awesome when you referenced uh landman because it's it's it's it's it's insane that like they even the numbers that they throw out like loosely at the sh in the show, you're like crunch, crunch, crunch, checks out like so yeah, that's really cool stuff.

SPEAKER_01 52:55

And and I um I think I think I heard you might be investing in some multi-units. So if you ever find yourself you can't invest in any more oil and gas, we can do some cost eggs on those multi-families if it makes sense to offset the profits in the oil and gas.

SPEAKER_00 53:10

Yeah, that's uh that's kind of the hope, is is to kind of like do a nice like kind of a cycle with the the two. So you have enough costs cost eggs to offset all the income from oil and gas, and then you know, just let it continue to repeat on itself.

SPEAKER_01 53:28

Yeah, and then you can refi the properties if the values increase and then buy more interest in oil and gas.

SPEAKER_00 53:35

See, there you go.

SPEAKER_01 53:37

Yeah, so yeah, it's really cool how it all comes together.

SPEAKER_00 53:42

Yep, yep, yep.

SPEAKER_01 53:43

I gotta watch more of that show. I just saw like the first 20 minutes, I said, Oh, I'm gonna like this. And you know, this is all a lot of this stuff is in like the Texas and Texas Mexico border. So Thani, you know, you might know some people or you might recognize some of the cities they talk about in Texas and Houston and stuff like that. So really cool.

SPEAKER_00 53:59

Yeah, well, I mean mostly it takes place up up uh yeah, like out in like Odessa, you know, type of area. But the um uh like just just so like you know, if anyone is considering like like chatting with some of those guys, like we did like some some background analysis on those guys as well, like make sure, like, hey, we we vetted you know the proposal, like all a lot of that's information is actually public record, so you can actually get in there and be like, okay, what's the actual production of some of these wells? Which wells are you looking at? Okay, this is like these are real places, you know. You can get a Google Earth and you're like, Yep, that's there, that's there, that's there. And um, he sends like texts with like drilling updates and stuff. Um, so there's uh there's you know some a little bit more comfort there because sometimes you're feeling like, hey man, I have no idea what's going on, you know, because you're so you're so passive in it, but like they actually make you feel like you're you know, like you're you're in the loop.

Vetting Deals And Distribution Benchmarks

SPEAKER_01 54:57

Yep. And also when one of the people who presented was Patra, and she um she will evaluate several opportunities. So she'll you know, she'll look at a few operators and a few funds, and so she'll do as opposed to in interacting and interfacing directly with with some of those people, she'll do a little more vetting and analysis for you if you're interested in someone who will hold your hand a little more. So she she's a resource there as well.

SPEAKER_00 55:25

Yeah, she's I think she's she's pulling some of that stuff together. We also invested with uh Steve Blackwell with Oh nice. And and their model is a little a little more unique where they um like he he takes in that fund and then now he has that fund, he goes out and invests in you know, operating interest into like more fracking locations. So that's more of a uh like a more finite hold. So it's like, hey, we're shooting gets you your capital back, make some money, and then sell the interest, cash out, uh usually like in like the five, seven year range, versus uh um the uh RT's program is more just like it's it's kind of like you buy and you hold. Like he'll buy it back if you don't want it, but yeah, when you just kind of bleed that one bleeds out, fracking kind of goes and then and it starts to dip. So he tries to sell it before it starts to dip.

SPEAKER_01 56:22

Yeah, I mean it's so it's so interesting how complex these and and varied these strategies can be. And what we see from most of our clients, if they're doing working interests, is they there usually isn't much of a capital gains piece, they usually run its course. Um, but the cash flow is like really good. You get your cash back really fast. I mean, I've seen I've seen ROIs as much as 50% in year one where someone invested 50 like 300 and got 150 back. Um but but obviously that would be like a more higher risk one. Uh but uh we have you know uh if you if you are interested in the royalty rights, those are ones where you can have a really good exit. More it's more of a stable long-term play there, but not as much, not really much tax savings there. So um we haven't talked much about that, but certainly um there are some favorable tax treatments of capital gains and capital gains planning on those investments. Yeah.

SPEAKER_03 57:14

Um so, Paul, in your scenario, what was your percentage in terms of dividend? Is it quarterly or is it monthly?

SPEAKER_00 57:24

Uh so he they they they do monthly um from from uh from RTD, uh Steve Blackwell, I believe his is gonna be quarterly. And that one, because it's it was a more of a fund where they put it together and then he goes out and then seeks those like the interest in in those different ones. That one's probably gonna be a little more delayed by the time it like starts cash flowing because he's gotta get and get into those because it's part of like it has to be part of the actual the drilling operation. And um, and so it, you know, he's gonna he's gonna enter into different interests at different points of their process. And because he invested mainly in like the fracking and stuff like that, um my guess is that it's not gonna be as rapid um versus uh RTs is more just like the uh like straight drill. You know, they go they go down like three, four thousand feet or three thousand feet or something, like just straight down, um, versus down and and over. So it's like a and it's uh significantly more cost effective to put it in a drill to get those operating than the fracking operations, but the fracking operations generate so much more once they once they hit, they that like they flow heavy and hard for um for a like a little bit shorter period of time compared to just like um like some of these things he said can run for 50 years. It's just they they start to dip and they literally talk about that in the in the show, which is pretty awesome. It's like uh if you pull out the drama from that show, there's actually like some decent like under like like they talk about some you know some drilling operations where you're like okay, like like that actually is what checks out from what they've said and you know what research you've you know you put into it. So um, yeah. So but both of which it was what because it was our first time into it, it was a little bit of a hedge to to do both. So it's like you know, invest with both of them, and then and then after a year or two, you'll be like I'll be like, okay, who's who's the stronger partner that you want to you know continue to invest with? And then when Petra gets hers going, you know, it'll be interesting to see that what that fund looks like. Maybe invest there too, and then okay, which which ones are performing the best, which one do you like the communication and and feel the most comfortable with?

SPEAKER_03 59:49

But um, so I guess my question was in certain funds, you kind of they can give you an estimate like okay, your quarterly um dividend would be like seven percent, let's just an example. So when we invest in these funds, is there a a mark that we should aim towards, or is it like okay, you get most everyone would get like five percent dividend or ten percent or seven?

SPEAKER_00 1:00:19

Is there a benchmark that there's uh they they do? And then in their in the proposal, like they like they both will have like a full deck where they'll walk through each of those things for you. Um the uh uh the thing that uh you know there's pros and cons to both, right? Because both have uh, you know, more like all right, there's probably a more sure return of investment with uh with some of like those like the the more like combined funds, but um there's also a uh reduction once your capital is is is is returned.