Asked by: Delmy Trinkaus
personal finance personal taxes

What are excess intangible drilling costs?

Last Updated: 18th May, 2020

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Intangible drilling costs are defined as costs related to drilling and necessary for the preparation of wells for production, but that have no salvageable value. These include costs for wages, fuel, supplies, repairs, survey work, and ground clearing. They compose roughly 60 to 80 percent of total drilling costs.

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In respect to this, how are intangible drilling costs deducted?

You elect to deduct IDCs as a current business expense by taking the deduction on your income tax return for the first tax year you have eligible costs. No formal statement is required. If you file Schedule C (Form 1040), enter these costs under "Other expenses."

Likewise, which of the following are considered intangible drilling costs for an oil and gas DPP? Intangible drilling costs are the noncapital costs of putting in a well. They are currently deductible expenses, like fuel, wages, and rent. An intangible drilling cost is one which, after expenditure, has no salvage value.

Similarly, do intangible drilling costs reduce basis?

Tangible costs, which pertain to the actual direct cost of the drilling equipment are 100% deductible but must be depreciated over seven years. Intangible drilling costs generally constitute 65-80% of the total cost of drilling a well and are100% deductible in the year incurred.

What is an AMT preference item?

Tax preference items are special cases on income received that may be included in the calculation of the alternative minimum tax (AMT). AMT is designed to prevent certain taxpayers from escaping their fair share of tax liability through tax breaks such as with preferential items.

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