Is there any way for an individual to use the Oil Depletion Allowance? My K-1 on lines 13T shows income and deductions from Domestic Production of Oil and Gas, but form 8903 (through TurboTax) tells me that I do not qualify for this deduction. Also, can I use line 13T8 of the K-1 "Interest Expense" elsewhere in my tax forms, like maybe form 4952? The EVEP K-1 package is better than most, but man these K-1's get complicated! I'm all for simplifying the tax codes, but then maybe we would lose the tax advantages of the LLPs and MLPs.
money already answered about depletion and intangible drilling cost (20T and i3J) which are deductions.
For your other questions:
the 13T stuff (combined for all your K-1s) can sometimes result in a deduction but only if certain ratios work out and most of the time you don't get a deduction. Last year I was all set to get a deduction with one K-1 left to enter. I entered that K-1 and the deduction disappeared.
No, don't even think of claiming 13T numbers elsewhere in your return. If you put the numbers into the TT interview it will give you all deductions you are eligible for. Claiming a 13T amount as a deduction somewhere else would probably be considered tax fraud and get you audited.
I agree with your last comment. It is complicated but if they simplfiy the tax code we lose our tax benefits that we have structured our investments around. I am against simplification.
"Apparently, TurboTax defaults to percentage depletion (which is just 15% of the royalty that you report instead of the higher cost depletion figure that is supplied on the K-1."
Yes, I always override it to cost depletion and then enter the largest of the 20T numbers which is usually labelled something like total sustained depletion.
Thanks Liza for your suggestion to review the Royalty section of the TurboTax interview. Apparently, TurboTax defaults to percentage depletion (which is just 15% of the royalty that you report instead of the higher cost depletion figure that is supplied on the K-1.
" the depletion for some of the MLPs and my royalty trusts was not transferring from the K-1 interview part of Turbo Tax to the Schedule E part."
It's a good question and one I have been unsure about (and still am).
TT always transfers the royalty expenses (box 13 something) to the schedule E royalty page, but I believe never automatically transfers the depletion over (and never has done so in the past).
Some MLP K-1s which have royalty income have a 20T code which says something like 'depletion on working interest' and another 'depletion on royalty interest'. I've always assumed the depletion on royalty interest can be transferred to schedule E royalty interview, however I don't have any source for assuming that. Similarly, what about the trusts which are taxed as partnerships (ECT, SDR, SDT, PER, CHKR). They are royalty trusts so I would guess the depletion deduction must apply to the royalty schedule E payment. But I've never been sure and I wonder again every year when entering these. Would love to see someone with definite knowledge.
For my part, when there is a box T which specifically mentions depletion on royalty interest I have gone into the royalty interview and entered it there. Also for the royalty trusts mentioned above, I have done the same on the basis that the repletion must apply to the royalty interest. For other MLPs (which are not trusts) and which do not specifically mention depletion on the royalty interest, I have not entered the depletion into schedule E (since anyway that depletion amount would be so large relative to the small amount of royalties). But I've never been quite sure if this is correct. Hope someone follows up this post with any definite guideline.
liza, what I was trying to ask is that it seemed like the depletion for some of the MLPs and my royalty trusts was not transferring from the K-1 interview part of Turbo Tax to the Schedule E part. Then I read that there are specific limits as to whether you are able to use the depletion based on the info in line 20. Anyway, it seemed like in prior years that the depletion was subtracted from your royalty on Schedule E. I'm assuming that TurboTax knows what it is doing.
"When TT creates a Schedule E worksheet for each report of a royalty payment, how do you name them to keep which depletion deduction goes with which royalty payment?"
Not sure if I understood your question. Are you referring to trusts which issue a K-1 (PER, CHKR, etc) and when you enter the royalty number from the K-1 (box 7, I think), it creates a schedule E? In that case, I usually then go to the royalties section in TT and update the royalty entry it created and enter the actual trust name in place of 'from K-1' which is all it puts in automatically. Is that what you were asking? Easier if you do that after entering each K-1 which includes royalties than waiting till there are a bunch of 'from K-1' entries that yuo have to figure out which is which.
liza, I see that you are online, you I have to ask you a question about TurboTax and the depletion deduction for royalty trusts. I entered it in the interview section but it doesn't show up on Sch E. I know this question is asked and answered every year, but can you remind me. When TT creates a Schedule E worksheet for each report of a royalty payment, how do you name them to keep which depletion deduction goes with which royalty payment?
yes you are a limited partner so you can take the larger of the percentage of cost or percentage depletion plus the intangible drilling cost if not already applied against income/loss in box 1