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.
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.
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
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.
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?
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.