intangible drilling costs on schedule K-1

[ravichosun]

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. 

[npierson7]

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. 

[ravichosun]

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

[npierson7]

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. 

[ravichosun]

Ok.  Thanks.  So if my designation were General Partner, do I still need to meet requirements for material participation in order to deduct from active income?

[phedwards2]

Hi, I have the same problem as the requestor.  I am a General Partner with material participation in an oil & gas LP with IDC (Intangible Drilling Costs) losses.  I entered this info in the K-1 section in TT, but TT does not ask if I materially participate.  It classifies the IDC loss as a Passive Income loss.  I believe this is incorrect and it should an Active Income loss - and therefore should reduce this years tax due on other Active Income (such as W2 income).  Any idea how to make this IDC loss Active Income?  It's reported on the K-1 in Box 14 as a Self-Employment loss, so I think it should appear as such in TT.