topic Re: Intangible Drilling Costs in Get your taxes done using TurboTax

Intangible Drilling Costs

MAC18 — Tue, 10 Mar 2026 06:29:47 GMT

I am an investor in an oil & gas partnership. I do not materially participate. Is there any limitation on how much of the intangible drilling costs I can deduct in year 1? I am under the impression that I have the choice of deducting 100% of the IDC's in year one or amortizing it over five years. However, does one need to materially participate in the venture in order to take a 100% deduction in year one?

Re: Intangible Drilling Costs

Anonymous_ — Thu, 13 Oct 2022 22:28:14 GMT

@Mike9241

Re: Intangible Drilling Costs

Mike9241 — Thu, 13 Oct 2022 23:57:25 GMT

material participation is not required. this is the reason some taxpayers may elect to amortize

Intangible drilling cost (IDC) is either capitalized and amortized or written off as an expense in the current year. If written off, there is a possibility that a portion of the entire excess IDC amount is included as a tax preference item subject to the alternative minimum tax. If capitalized and amortized, there is no tax preference on IDC.

Re: Intangible Drilling Costs

atrabul — Tue, 07 Feb 2023 17:03:47 GMT

How do you make the election expense Intangible Drilling Cost or Amortize in Turbo Tax?

Re: Intangible Drilling Costs

MAC18 — Tue, 07 Feb 2023 17:36:24 GMT

I don't think you make an actual election. Rather, you simply entire the entire amount of the intangible drilling costs reported to you or you enter 1/0th that amount if you decide to amortize over 10 years. If you deduct 100% in year 1, it is treated as a preference item so you want to make sure that does not cause you an AMT issue.

Re: Intangible Drilling Costs

atrabul — Tue, 07 Feb 2023 17:42:53 GMT

Sorry, I didn't understand how you enter this information into Turbo Tax. Were exactly would you do this, in the program?

Re: Intangible Drilling Costs

MAC18 — Tue, 07 Feb 2023 17:48:51 GMT

For me, I received a k-1 showing intangible drilling costs. The IDC expense was in box 13J of the k-1 and I entered the number in TurboTax when I was entering all my k-1 info for this particular partnership.

Re: Intangible Drilling Costs

AbrahamT — Thu, 09 Feb 2023 17:37:18 GMT

See here, this is how it would be entered.

Following this, you'll see this screen

Hit edit, then you get to this screen

And then finally to this screen which will give you the option to amortize of fully deduct.

Section 59(e)(2) expenditures can be taken in full in the current year for regular tax purposes. However, they have to be amortized over a certain amount of time for AMT. If no type code is selected, the default is mining costs. For AMT purposes, mining costs are required to be amortized over 10 years. @atrabul

Re: Intangible Drilling Costs

atrabul — Fri, 10 Feb 2023 14:40:17 GMT

Thanks alot... all these types of investments, the investors should receive a schedule K I assume?

Re: Intangible Drilling Costs

DianeW777 — Fri, 10 Feb 2023 14:55:43 GMT

Yes, you are correct. An investment in a partnership means that your share of income, intangible drilling costs and other expenses or credits will be reported to you on your own 1065-K1.

Due Date:

Generally, a domestic partnership must file Form 1065 by the 15th day of the 3rd month following the date its tax year ended as shown at the top of Form 1065. For calendar year partnerships, the due date is March 15. Check with your partnership to see when you could expect your K1.

Where do I enter a K1?

@atrabul

Re: Intangible Drilling Costs

Bruce52 — Wed, 01 Mar 2023 21:14:26 GMT

I believe that IDC can be amortized over 60 month period. The election is made on form 4562. The problem with deducting the entire amount is that they are a tax preference item subject to the Alt Min Tax. Does Turbotax suggests the best decision or do you have to run it both ways?

Re: Intangible Drilling Costs

HopeS — Wed, 01 Mar 2023 22:23:09 GMT

It depends on your personal tax return situation to see which method would be most beneficial to you. You would need to run both scenarios to decide which is best. An AMT adjustment is required if costs are not amortized over 60 months.

As mentioned, Intangible Drilling Costs may be fully deducted as a business expense by electing to do so, or capitalized and recovered through depreciation or depletion. These 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.

See additional information that might be helpful to you in the link below:

Intangible drilling costs

Re: Intangible Drilling Costs

BrianJ2 — Mon, 20 Mar 2023 00:41:22 GMT

I see that the 59(e)(2) worksheet is calculating Excess intangible drilling costs on line 11. This doesn't match what was reported on the K1 Box 17 code F. Form 1065 is erroring out because the calculated number auto populates but doesn't match the K1 number.

Re: Intangible Drilling Costs

PatriciaV — Mon, 20 Mar 2023 13:25:47 GMT

Please clarify what version of TurboTax you are using and where you are entering IDC.

It would also help to know the amounts from K-1 - Box 13 code J and Box 17 code F - and from the 59(e)(2) worksheet Line 11. Did you elect to expense the IDC?

@BrianJ2

Re: Intangible Drilling Costs

BrianJ2 — Thu, 30 Mar 2023 23:02:30 GMT

Version: Premier

Where: K1 entry form - Box 13

13 - J: 3,540

17 - F: 3,530

worksheet line 11: 3,186

yes, expense.

Re: Intangible Drilling Costs

PatriciaV — Sun, 02 Apr 2023 20:46:36 GMT

I'm unable to reproduce the form errors you mentioned. Entering the K-1 line items as listed generates Excess IDC of $3,186 (90% of total), but this has no effect on the loss reported on Schedule E p2. Please advise if you have a different experience, especially during SmartCheck.

Re: Intangible Drilling Costs

gyaqwe — Sun, 24 Mar 2024 06:19:41 GMT

These steps are enormously useful. Thank you.

When I go thru those steps and enter the IDC amount for Box 13, let's say $37.5k, and choose that I want to amortize in a single (this) year, I do NOT see any reduction of my overall tax liability.

Do I need to take any other manual steps to make sure that IDC amount takes effect and reduces my AGI?

TIA!

-G

Re: Intangible Drilling Costs

c0nstant1ne — Mon, 25 Mar 2024 05:47:04 GMT

I'm experiencing the same as @gyaqwe .

What I did:

- Entered the number in box 13 'other deductions'

- selected code J

- selected deduct this year instead of amortize

but I didn't see any deduction applied.

Is this a bug or I did it wrong?

One thing I noticed is that although I selected code J for box 13, the next screen shows CODE I:

Re: Intangible Drilling Costs

DaveF1006 — Mon, 25 Mar 2024 13:17:15 GMT

When you went through the interview, there is a question asking you if you materially participate in the venture. If you indicate you did not, you won't get credit for the deduction.

This would be the first place i would look.

@c0nstant1ne

Re: Intangible Drilling Costs

gyaqwe — Wed, 27 Mar 2024 01:38:13 GMT

This was indeed the problem @DaveF1006 Thanks!. I assumed that the software knows that Working Interest in OnG is always non-passive. Well it doesn't. I had to select it while entering the data and then it took effect. @c0nstant1ne - see if that works for you.

-G