intangible drilling costs on schedule K-1

5 replies
55 views

I made in investments in oil and gas as a limited partner in 2020. I entered the intangible drilling costs from box 13 code J into turbo tax, but I don't see any reduction in my taxable income. These losses should deduct from my ordinary W-2 income correct? How come I am not seeing this? Thanks.

npierson777

Level 10

It is not correct. The loss should be passed to you and is reported on K-1 and your tax return, however it doesn't have anything to do with your W-2 income.

ravichosunAuthor

Level 2

Loss from working share of oil and gas wells should be deductible from ordinary income.

"Active vs. Passive Income

The tax code specifies that a working interest (as opposed to a royalty interest) in an oil and gas well is not considered to be a passive activity. This means that all net losses are active income incurred in conjunction with well-head production and can be offset against other forms of income such as wages, interest and capital gains."

https://www.irs.gov/irm/part4/irm_04-041-001#idm[phone number removed]824

npierson777

Level 10

Yes, however, a limited partner is generally passive due to more restrictive tests for material participation. As a result, limited partners will generally have passive income or losses from the partnership.