Capital Gains and Losses
Questions and comments about tax rules for buying and selling stocks, mutual funds, real estate and other assets.
Passive vs. Non-Passive Income from PTP?
Posted by: austexhm, March 31, 2010 06:40PM
I'm a passive investor in an oil & gas exploration & production PTP.

K-1 box 1 = 1,812 of ordinary business income
box 13J = 309 of intangible drilling costs
box 20T1 = 1,650 of total depletion deduction

K1 explanation advises that the IDC and depletion weren't deducted from box 1.

I use TaxAct SW, which transfers the amount in box 1 to Sched. E, line 28(j) as non-passive income.

Q: As a passive investor, am I allowed to deduct the IDC and depletion?
Q: If so, should these amounts show up in columns (f) and (g) as passive loss and income, instead of as non-passive?
Q: If I can deduct the IDC and depletion, do these deductions then lower my basis?

I am greatly in need of your guidance on this one. Thanks!

Re: Passive vs. Non-Passive Income from PTP?
Posted by: rbotterb, March 31, 2010 08:12PM
The IDC can be generally either be depreciated over its life (usually either 5 or 10 yrs) or taken at once (though you technically have an AMT adjustment for the difference in depreciation taken. Now I've never seen the IDC material given with enough detail to tell which class life it should have, so basically you down to say depreciation over 10 yrs to be conservative versus taking it all at once - most folks I would imagine take it all at once since their tax software generally can't handle a depreciation of this sort of thing hanging off a PTP.

The depletion is one to add manually to your 1040 on SCH E as well.

Now you will likely find down the road that when you sell those PTP shares, you'll get a sales worksheet that takes those expenses into play for basis adjustments. I would imagine the IDC is adjusted for, but not so sure on the depletion since you could use either cost or percentage depletion, depending on which is larger and I'm not sure if the PTP will factor this into play on those sales worksheets - may need to ask the PTP admistrator on that one to double check things.

Roger

Re: Passive vs. Non-Passive Income from PTP?
Posted by: AlvinS, March 31, 2010 11:53PM
I'd strongly suggest you use Turbotax if you have mlps. The IDC and depletion is all handled automatically in addition to handling the suspended losses into the next year.

In your case you have:
K-1 box 1 = 1,812 of ordinary business income
box 13J = 309 of intangible drilling costs
box 20T1 = 1,650 of total depletion deduction

Assuming this ptp has no other income this year (i.e. box 10, 11 etc.) and you have no prior year suspended losses, then I believe TT would handle it roughly as follows:

Sch E on successive lines
"PTP - name" line g, $1812
"Intangible drilling cost" line f, $286 ($23 loss suspended)
"Depletion" line f, $1526 ($124 loss suspended)

Unless this is a final K-1 you can't report more losses than you have
passive income from the ptp so you are limited to $1812 in reportable losses. You'll probably get to use the suspended losses next year.

Note that TT also handles the IDC if you decide to amortize it as it keeps track of the prior 4 years information and adds it to the current year depletion.

Re: Passive vs. Non-Passive Income from PTP?
Posted by: austexhm, April 1, 2010 02:09AM
My thanks to both of you.

Alvin: In your numbers, wouldn't "Depletion" of $1526 also go under line (f), instead of line (g)? That's the only way I see that IDC and depletion would offset income.

FYI, my problem in TaxAct is that the 1812 transfers from the K-1 entry sheet into column (j) as non-passive income. Following TaxAct instructions, I can also get the IDC and depletion numbers into column (h) as non-passive losses, but the result is then a negative $147 being transferred to F1040 line 17, which is not allowed (can't be more than zero as you pointed out).

So, I don't know whether to stick with the TaxAct solution which gives non-passive results, or to force the numbers as you have them onto the passive side.

Any further thoughts?

Re: Passive vs. Non-Passive Income from PTP?
Posted by: austexhm, April 1, 2010 02:16AM
Alvin: Not sure if I hit the right button in my reply to you, above, so that this thread would come to your attention again. Henry

Re: Passive vs. Non-Passive Income from PTP?
Posted by: AlvinS, April 1, 2010 02:30AM
Yes, both losses should be on column f (I fixed my original post).

FWIW: TT does put net gains in column j. So lets say box 1 is $10000 and IDC and depletion are $4000. TT will put $4000 as passive income in column g to match the $4000 in passive losses in column f and then it will put $6000 as column j, nonpassive income. However, for any K-1 that has a net loss, there is nothing under nonpassive (unless a final K-1).
Not sure if this is correct but it is what TT does.

I also estimated what the IDC and depletion would be as I believe the allowable loss is to be prorated between the different categories but I haven't directly tested that on TT.



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