Intangible drilling cost in California

Forum|Forum|1 year ago
April 2, 2025
2 replies
4 views

I entered K-1 for intangible drilling cost (loss entered as deduction). Turbo Tax has applied the deduction to both Federal and California state returns. From 2024, California does not allow intangible drilling cost deduction but Turbo Tax seems to have applied it for California as well. Can someone help on how to handle intangible drilling cost deduction for California ?

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NhandaAuthor

Level 3

As per https://www.ftb.ca.gov/forms/2024/2024-3510-instructions.html#:~:text=Intangible%20Drilling%20and%20Development%20Costs,or%20Schedule%20P%20(541). , California does not allow intangible drilling cost expense in 2024 but Federal return allows it. How to handle this in Turbo Tax with the California return? Turbo Tax is taking the federal taxable amount (reduced by intangible drilling cost) in California as well which seems incorrect.

NhandaAuthor

Level 3

I also hear that the expense can be amortized in CA for 5 years. Can this be handled in Turbo Tax ? I understand there is a live tax expert feature and if that helps in this case.

PatriciaV

Level 15

To eliminate intangible drilling costs reported on Schedule K-1, you will need to manually adjust Line 13d under the California K-1 adjustments topic. Find this from the page "Here's the income that California handles differently" under Business >> Partnership K-1.

The Federal column displays the full amount you deducted on your federal return. Enter zero in the California column for Line 13d and on Line 17f.

If IDC is reported to you in the future, you will need to make this adjustment each year.

[edited 4/15/25 | 12:46 pm PDT]

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Chris-was-here

Level 2

No way to use IDC against California state taxes anymore - starting 2024 the state made you add it back on Schedule CA. The good news is you still get the full federal deduction, which is usually the bigger lever for high earners. For state, you’ll need other moves (max retirement, muni bonds, maybe entity structuring if you open a business).

So the benefit is still very real at the federal level, but for high earners in California, you just can’t use IDC to lower your California state taxes anymore.