Tax Overhaul Raises Exemption Phaseout Levels: What’s This Mean for Oil & Gas Investment Tax Benefits?

The Trump Administration’s major tax overhaul already showed slight impact in 2018’s first few rounds of pay stubs, as W2 employees noticed slightly less in their tax-withholding column and slightly more in their take-home pay column. This is one of the changes we can file under the “easy to notice” category. But, this article isn’t about those; rather, it’s going to focus on the “wait, what?” category. Unless you spent your Christmas break combing over the 1000+ page tax bill, you’re likely going to rely on the recommendations of tax professionals to help you understand how to best protect your income from Uncle Sam. In this post, let’s break down a major change that can help maximize the benefits of investing in oil & gas. Raise the Roof (or at least raise the exemption phaseout levels)

Trump’s tax overhaul raises "exemption phaseout levels" for single filers and joint filers. These exemption levels can be thought of like this: at some income dollar amount, you start gradually losing your ability to claim exemptions against your income. If you’re single, that dollar amount rate for your 2017 taxes will be $120,700. When the overhaul rules take ground for your 2018 taxes, this dollar amount will raise to $500,000. So, for 2017, if you made more than $120,700, you would be limited on the power of exemptions you could enjoy to protect your income. The more money you made over that number, the less help you’d enjoy from exemptions--exemptions everywhere from state and local exemptions to dependent exemptions. How about some examples?

Examples (Single filers):

  • 2017 - Single income of $200,000 - you’re vulnerable to the weakening ability to enjoy exemptions because you’re over the $120,700 phaseout level.
  • 2018 - Single income of $200,000 - you can enjoy all the exemptions you’re eligible for because the new phaseout level is marked at $500,000 (up from the $120,700 mark in 2017)

Examples (Joint filers):

  • 2017 - Joint income of $300,000 - you’re vulnerable to the weakening ability to enjoy exemptions because you’re over the $160,900 phaseout level.
  • 2018 - Joint income of $300,000 - you and your spouse can enjoy all the exemptions you’re eligible for because the new phaseout level is marked at $1 million (up from the $160,900 mark in 2017)

 

Oil & Gas Investments

The newly raised exemption phaseout levels can benefit oil & gas investors tremendously, especially investors still pulling in income (income from investments or otherwise). Previously, these investors’ exemptions would diminish after a certain (lower) income threshold. But now, under the new tax overhaul, the ability for these investors to enjoy exemptions will start diminishing only after much higher income thresholds. Good news for investors relying on oil & gas investments for their significant tax benefits. Please note, I am not a tax professional, nor do I ever claim to be. I do not give tax or investment advice. For this flavor of advice, please consult your tax professional, or read up on IRS happenings at credible online sources like this.