Intangible Drilling Costs

Forum|Forum|3 years ago
October 13, 2022
2 replies
0 views

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?

Best answer by Mike9241

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.

Anonymous_

Employee

@Mike9241

Mike9241Answer

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

atrabul

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

MAC18Author

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.