Discussion:Limited Partnership ConsQ, Oil & Gas

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Discussion Forum Index --> Consumer Questions --> Limited Partnership ConsQ, Oil & Gas

Tjknd (talk|edits) said:

21 November 2005
I am an investor in an oil and gas limited partnership. On my K-1, the partnership reported net losses and intangible drilling costs for 2003 and 2004. I took the losses and indirect drilling costs as passive losses because because of the passive activity limitations. I have since learned that it is possible to take intangible drilling costs as expenses against ordinary income if the costs are associated with nonproductive wells (dry holes), which these were. Is this true and can they be taken as current expenses or must they be capitalized? The Partnership itself took them as current expenses and gave the option to limited partners to take them as current expenses or capitalize. Also, can the election to capitalize be made retroactively to 2003 and 2004?

Butch (talk|edits) said:

22 November 2005
I have been preparing returns for thirty one years now. In that time I have NEVER seen either a general or limited partner make money in oil and/or gas.

If it is a dry hole by the end of the year and there are no other wells that you have agreed to agregate as a single activity then you have the ability to expense the IDCs that remain. I can not think of any reason to amortize if there is no more activity.....

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