It depends. If you didn't receive a K-1, you may report the Intangible Drilling Costs on Schedule E, Page 2. You can deduct these expenditures in full or you can elect to amortize them. Intangible drilling costs are defined as costs related to drilling and necessary for the preparation of wells for production, but that have no salvageable value. These include costs for wages, fuel, supplies, repairs, survey work, and ground clearing. They compose roughly 60 to 80 percent of total drilling costs.
Intangible drilling costs are 100% tax-deductible in the year incurred. It doesn't matter if the well produces or strikes oil; as long as it is operating by March 31 of the following year. the intangible costs are 100% deductible
