How do I enter Intangible Drilling Costs from box 13 of Form K-1P?
Intangible Drilling Costs can either be:
- deducted in full as a current business expense, or
- amortized over a 60 month period.
Deducting in Full as a Current Business Expense
Use screen K1S, box 13, code J4 in Drake23. In Drake22 and prior, use screen K1S, box 13, code JD. The amount carries to the basis worksheet Wks K1P Adj Basis, line 10m. Depending on the partner's participation in the partnership (active or passive), basis in the partnership, and partnership income (loss), IDC amounts may be able to offset current year income - review Wks K1P Adj Basis.
If the partnership is not a passive activity, Intangible Drilling Costs allowed will show as a loss on Schedule E, Page 2, Part II with a description of Sec. 59e Expense:
If the partnership is a passive activity, the deduction will still be calculated on Wks K1P Adj Basis, but the expense is not separately reported on E.PG2 as amounts carry to form 8582 first to determine any Passive Activity Loss Limitations that would be applicable.
If the partnership reports royalty income on the K1P, line 7, the allowable expense will be shown on the Schedule E, Page 1, Line 19 as Sec. 59E Expense, instead. This applies to partnerships with either activity type other passive or non-passive. This amount may be limited by the basis; see Wks K1P Adj Basis, line 10m or the Partner's adjusted basis worksheet, page 2.
Amortizing Intangible Drilling Costs
If the IDC deduction should be amortized over a five year period instead of being taken in full, the entry should be removed from the K1P screen and entered on the 4562 screen. Use the FOR and Multi-Form Code boxes to associate the 4562 with the K1P screen to which it belongs.
Note: IDC amounts may be subject to Alternative Minimum Tax as well-- see Related Links below.
See Partner's Instructions for Schedule K-1 (1065) for more information.
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