SWAT Advisors sees more high earners exploring oil and gas tax breaks

SWAT Advisors says high-income investors are taking a fresh look at oil and gas tax strategies after federal bonus depreciation rules were restored for qualifying property placed in service after Jan. 19, 2025. The firm says the change is reviving interest beyond the energy sector as investors search for ways to offset income tax liability.

Why it matters: - Oil and gas working interests can offer tax treatment that differs sharply from most passive investments. - High-income investors are looking for ways to reduce tax liability from W-2 income, business profits and capital gains. - Restored bonus depreciation rules have made the strategy more attractive again for qualifying investments.

What happened: - SWAT Advisors reported increased interest in oil and gas tax strategies from high-income investors. - The California-based firm linked the shift to recent federal deduction changes and limits many high earners face in traditional investment vehicles. - Founder Amit Chandel said interest has picked up because the tax profile of oil and gas investments can differ from real estate and securities.

The details: - Intangible drilling costs, which typically make up 70% to 80% of a well's total cost, are generally deductible in full in the year they are incurred. - Tangible drilling costs such as wellheads and casing are now eligible for full first-year deduction under bonus depreciation rules restored permanently for qualifying property placed in service after Jan. 19, 2025. - Working interest holders are generally exempt from passive activity loss limits that apply to most other investments. - A percentage depletion allowance can let investors deduct part of gross income from production. - Chandel said the combination of full first-year deductions, immediate expensing of intangible costs and exemption from passive loss limits creates a tax profile that is uncommon elsewhere. - The firm said bonus depreciation had been phasing down for several years before legislation passed in 2025 restored 100% bonus depreciation permanently for qualifying property. - Investors and advisors are now recalculating oil and gas opportunities using the restored full-expensing treatment.

Between the lines: - The renewed interest is not just about tax savings. - Chandel warned that oil and gas investments still carry operational and market risks, including well performance, commodity prices and operator track record. - The strategy appears most relevant to investors with meaningful income tax exposure who can evaluate how a specific offering is structured. - The tax benefit can vary widely depending on individual circumstances and deal terms.

What's next: - More investors and advisors may revisit oil and gas offerings as they update tax models under the restored depreciation rules. - SWAT Advisors said outcomes will continue to depend on the structure of each investment and the investor's income profile. - The firm is positioning the strategy as one part of broader tax planning, not a standalone decision.

The bottom line: - Restored bonus depreciation has brought oil and gas tax strategies back onto the radar for high earners, but the underlying investment risk still matters as much as the deduction.