---
title: Modeling Intangible Drilling Costs (IDCs) in Holistiplan
description: A step-by-step guide to modeling intangible drilling costs (IDCs) in Scenario Analysis.
---

[Skip to content](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#main-content)

English

Show submenu for translations

[More support](https://help.holistiplan.com/kb-tickets/new?hsLang=en)

[![Holistiplan Logo (800x200 px).webp\]](https://help.holistiplan.com/hs-fs/hubfs/Holistiplan%20Logo%20(800x200%20px).webp?width=160&height=40&name=Holistiplan%20Logo%20(800x200%20px).webp)](https://www.holistiplan.com/)

Open main navigation

Close main navigation

- English
  
  Show submenu for translations
- [More support](https://help.holistiplan.com/kb-tickets/new)

 Holistiplan Knowledge Base

- There are no suggestions because the search field is empty.

1. [Help Center](https://help.holistiplan.com/?hsLang=en)
2. [Scenario Analysis](https://help.holistiplan.com/scenario-analysis?hsLang=en)
3. [Credits and Deductions](https://help.holistiplan.com/scenario-analysis?hsLang=en#credits-and-deductions)

# Modeling Intangible Drilling Costs (IDCs) in Holistiplan

## Intangible drilling costs (IDCs) are costs of drilling and preparing oil and gas wells that have no salvage value, such as labor, fuel, repairs, and supplies. Investors in oil and gas limited partnerships often receive large IDC deductions, especially in the early years of an oil and gas operation.

Holistiplan doesn't have a separate IDC input. Instead, IDCs are modeled in two places: the partnership entity, which handles the regular tax treatment, and the Alternative Minimum Tax (AMT) section, which handles any AMT preference or adjustment.

**NOTE:** This article covers limited partnership (LP) interests, which are generally passive.

Working interests follow different rules for passive activity treatment, self-employment tax, and AMT, which are covered in the [Working Interest Exception](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#working-interest) section below.

***Jump to:*

[Step 1 - Model the Partnership Entry](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#step-1)**  
\- [Clear Schedule E Override](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#clear-sch.e-override)  
\- [Add Partnership Entity and Details](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#add-partnership-details)  
\- [K-1 Income Items](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#k1-income)  
\- [Passive Activity Loss (PAL) Carryforward](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#PAL-carryforward)

[**Step 2 - AMT Implications (if applicable)**](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#Step2)

[**Review the Results (and Example Case)**](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#review-results)

**[Working Interest Exception](https://help.holistiplan.com/modeling-intangible-drilling-cost-idcs#working-interest)**

---

### **Step 1: Model the Partnership Entity**

Clear Schedule E Override: First, navigate to the Schedule E Income subsection of the Schedule 1 Income section and click the pencil icon in the Partnerships and S Corps row. If the scenario was created by copying an uploaded return, instead of entity details, [the Schedule E override field shown outlined below will need to be cleared](https://help.holistiplan.com/how-do-i-clear-overrides-in-scenario-analysis?hsLang=en). 

![](https://help.holistiplan.com/hs-fs/hubfs/image-png-Sep-24-2026-09-16-21-4182-PM.png?width=500&height=359&name=image-png-Sep-24-2026-09-16-21-4182-PM.png)

![](https://help.holistiplan.com/hs-fs/hubfs/image-png-Sep-24-2026-09-17-14-4836-PM.png?width=450&height=240&name=image-png-Sep-24-2026-09-17-14-4836-PM.png)

 

#### Add Partnership Entity and Details

Once the [override has been cleared](https://help.holistiplan.com/how-do-i-clear-overrides-in-scenario-analysis?hsLang=en), expand the Schedule E Income options where highlighted below, and click on the pencil icon circled below to access the Partnerships and S-Corps Worksheet, and then the blue "+ Add Entity" button.

![](https://help.holistiplan.com/hs-fs/hubfs/image-png-Sep-24-2026-09-20-59-9323-PM.png?width=500&height=358&name=image-png-Sep-24-2026-09-20-59-9323-PM.png)  
![](https://help.holistiplan.com/hs-fs/hubfs/image-png-Sep-24-2026-09-46-39-3717-PM.png?width=350&height=203&name=image-png-Sep-24-2026-09-46-39-3717-PM.png)

Once in the Partnerships and S-Corps Worksheet, enter the name of the partnership, choose *Partnership* in the Entity Type drop-down menu, select the *Limited Partner* option in the Partner Type drop-down menu, and *assign the taxpayer* who is participating as the partner in that partnership, all where outlined in blue below.

![](https://help.holistiplan.com/hs-fs/hubfs/image-png-Sep-24-2026-09-52-41-5510-PM.png?width=650&height=500&name=image-png-Sep-24-2026-09-52-41-5510-PM.png)

Partner type determines self-employment (SE) Tax exposure (limited partners are not subject to SE Tax) and passive activity defaults (generally passive losses are deductible only to the extent of any passive income). 

Next, in the Entity Details, make sure the toggle for *SSTB (Specified Service Trade or Business) is toggled off*, and set participation to *Not Material*.  Oil and gas production is generally not an SSTB, so toggling the SSTB to off unless the partnership's business falls within one of the specified service fields (health, law, accounting, consulting, athletics, financial services, and performing arts) is generally the right approach. Indicating no material participation treats the activity as passive, which determines how much of any loss is deductible in the current year.

#### K-1 Income Items

Enter the ordinary business income or loss, which is generally reported in Box 1 of the Partnership's [Schedule K-1](https://www.irs.gov/pub/irs-pdf/f1065sk1.pdf), in the Box 1 field outlined in blue below. IDCs deducted by the partnership are typically already included in this amount. If the K-1 reports IDCs separately, include them with the amount entered here, since this is where Holistiplan models the partnership's income or loss.

![](https://help.holistiplan.com/hs-fs/hubfs/image-png-Sep-25-2026-03-30-28-2219-PM.png?width=650&height=485&name=image-png-Sep-25-2026-03-30-28-2219-PM.png)

While not common, other income items from the K-1 may apply to your client's scenario. The question mark icons circled above provide additional detail on when those items may or may not apply, and whether they need to be entered for your client's unique situation.

**CAUTION:** Enter the full loss reported on the K-1, not the amount allowed on the return. Holistiplan applies the passive activity loss rules automatically, so entering only the allowed amount would understate both the loss and any suspended carryforward.

#### Passive Activity Loss (PAL) Carryforward

Enter any suspended passive losses carried forward from prior years in the field outlined in red above. Holistiplan will combine these suspended carryforward from prior years with any current-year losses to determine how much can offset income in the current year.

**HINT:** Passive losses can generally offset only passive income under the passive activity loss (PAL) limitations outlined in [IRS Publication 925](https://www.irs.gov/publications/p925). If the client's return shows part of the partnership loss was allowed, check that the client's other passive income is also modeled in the scenario. Otherwise, Holistiplan may suspend the entire loss.

### **Step 2: Account forAlternative Minimum Tax (AMT) Implications**

IDCs can create an AMT preference item, which is reported on [Form 6251](https://www.irs.gov/pub/irs-pdf/f6251.pdf). However, for most individual investors, the AMT impact is small or zero, for two main reasons:

- **The independent producer exception - [IRC §57(a)(2)(E)](https://uscode.house.gov/view.xhtml?req=(title:26%20section:57%20edition:prelim)):** The IDC preference generally doesn't apply to taxpayers who aren't integrated oil companies, which includes most individual investors. It applies only to the extent that eliminating the preference would reduce alternative minimum taxable income (AMTI) by more than 40% (as noted in [IRC §57(a)(2)(E)(ii)](https://uscode.house.gov/view.xhtml?req=(title:26%20section:57%20edition:prelim)))
- **Passive activity treatment.** Because a limited partnership interest is passive, the AMT effect of its IDCs is included when the passive activity loss is refigured under AMT rules (Form 6251, line 2m), rather than reported separately as an IDC preference (Form 6251, line 2t).

Holistiplan's AMT section below is where you add back preference items for lines 2m and 2t, where outlined below, and where Holistiplan takes into account any AMT implications from IDCs. But again, for most investors, the AMT impact is minimal or non-existent. 

![](https://help.holistiplan.com/hs-fs/hubfs/image-png-Sep-25-2026-09-57-50-8135-PM.png?width=650&height=633&name=image-png-Sep-25-2026-09-57-50-8135-PM.png)![](https://help.holistiplan.com/hs-fs/hubfs/image-png-Sep-25-2026-10-04-37-3583-PM.png?width=650&height=421&name=image-png-Sep-25-2026-10-04-37-3583-PM.png)

The best way to determine whether an entry is needed is to review a prior return's Form 6251, provided this isn't the first year of operation of the oil and gas partnership:

1. Review the client's [Form 6251](https://www.irs.gov/pub/irs-pdf/f6251.pdf) for an amount on line 2m (passive activities).
2. If there's no amount, or the return doesn't include [Form 6251](https://www.irs.gov/pub/irs-pdf/f6251.pdf), no AMT entry is typically needed for the partnership.
3. If there is an amount on line 2m, enter the same amount on line 2m in the Alternative Minimum Tax (AMT) section of Scenario Analysis, assuming the oil and gas partnership is materially similar in the current year as it was in prior years.
4. Click the calculator icon next to the AMT result to review the calculation steps, and compare the results to the client's [Form 6251](https://www.irs.gov/pub/irs-pdf/f6251.pdf).

### **Review the Results**

Review the entity's Summary card to confirm the allowed and suspended loss amounts match the client's Form 8582.

**EXAMPLE:** Our client, Peter, holds a limited partnership (LP) interest in M-Tex Oil & Gas. The K-1 reports a $30,000 ordinary loss, which includes $10,000 of IDCs. Peter has $10,000 of passive income from another activity, so $10,000 of the loss is allowed and $20,000 is suspended. To model this scenario:

1. Create a *Partnership* entity with a *Limited Partner* Partner Type and *Not Material* participation classification.
2. Enter the $30,000 loss as the K-1 ordinary business loss. Don't enter the IDCs separately, but include them in that $30,000 loss.
3. Confirm Peter's other $10,000 of passive income (in this case from a rental property) is modeled in the scenario.
4. Check the Summary Card within the Partnerships Worksheet, which should show $10,000 of loss allowed and $20,000 suspended.
5. Review the Peter's Form 6251. If line 2m is zero, no entry is needed in the AMT section. If Line 2m is something other than zero and the oil and gas partnership structure is similar to last year, use the line 2m entry from the prior year's Form 6251, or consult with a tax professional to determine the appropriate entries.

In scenarios for the following tax year, enter the $20,000 Passive Activity Loss (PAL) Carryforward in the Passive Activity Loss Carryforwards field of the Partnerships and S-Corps Worksheet, so that carryforward is accounted for in future year(s).

 

### **Modeling a Working Interest**

A working interest in an oil or gas property, held directly or through an entity that doesn't limit the investor's liability, is treated differently via the working interest exception in [IRC §469(c)(3)](https://uscode.house.gov/view.xhtml?req=(title:26%20section:469%20edition:prelim)) from a limited partnership interest in three ways:

1. **It isn't passive, regardless of participation.** Losses, including those driven by IDCs, can generally offset wages and other nonpassive income in full, with no suspended carryforward.
2. **It's generally subject to self-employment tax.** Because the investor bears unlimited liability, net income from a working interest is typically self-employment income.
3. **Any IDC preference is reported on Form 6251, line 2t.** Since the activity isn't passive, there's no passive activity recomputation on line 2m of Form 6251. The independent producer exception still generally eliminates the IDC preference for individual investors.

To model a working interest, the steps are the same as the passive interest steps outlined above, with the following exceptions below:

1. Create a Partnership entity and select the *General Partner* option (and not Limited Partner) in the Partner Type menu, which captures Self-Employment (SE) Tax exposure.
2. *Toggle "On"* (not "Off") the *Material Participation* setting that results in nonpassive treatment, and confirm on the Summary Card in the Partnerships and S-Corps Worksheet that the full value of the loss is being allowed.
3. Enter the full K-1 loss, including IDCs, as the ordinary business income or loss.
4. Review the client's [Form 6251](https://www.irs.gov/pub/irs-pdf/f6251.pdf) for an amount on line 2t. If there is one, enter it in the corresponding input in the AMT section.

**HINT:** If a working interest produces a nonpassive loss in any year, net income from that same property in future years is generally also treated as nonpassive in nature as well. As such, that nonpassive loss can't be used to absorb other passive losses.

 

If you have any questions, please reach out to via the [Contact Support](https://help.holistiplan.com/how-to-contact-support?hsLang=en) button at the top-right of most screens in Holistiplan for more assistance.

- [Getting Started at Holistiplan - 101](https://help.holistiplan.com/getting-started-at-holistiplan-101?hsLang=en#main-content)

    - [How to Contact Support](https://help.holistiplan.com/getting-started-at-holistiplan-101?hsLang=en#how-to-contact-support)
    - [Ready to Get Started?](https://help.holistiplan.com/getting-started-at-holistiplan-101?hsLang=en#ready-to-get-started)
    - [Getting Started with Your Households](https://help.holistiplan.com/getting-started-at-holistiplan-101?hsLang=en#getting-started-with-your-households)
    - [Tax Report](https://help.holistiplan.com/getting-started-at-holistiplan-101?hsLang=en#tax-report)
    - [Scenario Analysis](https://help.holistiplan.com/getting-started-at-holistiplan-101?hsLang=en#scenario-analysis)
    - [Master Your Dashboard](https://help.holistiplan.com/getting-started-at-holistiplan-101?hsLang=en#master-your-dashboard)
    - [Tips for New Users](https://help.holistiplan.com/getting-started-at-holistiplan-101?hsLang=en#tips-for-new-users)
- [Deeper Dive at Holistiplan - 201](https://help.holistiplan.com/deeper-dive-at-holistiplan-201?hsLang=en#main-content)

    - [Mastering the Tax Report: Advanced Insights and Analysis](https://help.holistiplan.com/deeper-dive-at-holistiplan-201?hsLang=en#mastering-the-tax-report-advanced-insights-and-analysis)
    - [Advanced Planning with Scenario Analysis](https://help.holistiplan.com/deeper-dive-at-holistiplan-201?hsLang=en#advanced-planning-with-scenario-analysis)
    - [Roth Projection Tool](https://help.holistiplan.com/deeper-dive-at-holistiplan-201?hsLang=en#roth-projection-tool)
    - [Using the Tax Explainer](https://help.holistiplan.com/deeper-dive-at-holistiplan-201?hsLang=en#using-the-tax-explainer)
    - [Tax Letter- Adding Value for Your Clients](https://help.holistiplan.com/deeper-dive-at-holistiplan-201?hsLang=en#tax-letter-adding-value-for-your-clients)
- [Holistiplan Basics](https://help.holistiplan.com/holistiplan-basics?hsLang=en#main-content)

    - [Uploading Returns](https://help.holistiplan.com/holistiplan-basics?hsLang=en#uploading-returns)
    - [Household Information](https://help.holistiplan.com/holistiplan-basics?hsLang=en#household-information)
    - [Tools & Resources](https://help.holistiplan.com/holistiplan-basics?hsLang=en#tools-resources)
    - [Firm Admins](https://help.holistiplan.com/holistiplan-basics?hsLang=en#firm-admins)
- [Holistiplan Academy - Upload Breakdown](https://help.holistiplan.com/holistiplan-academy-upload-breakdown?hsLang=en#main-content)

    - [Tax Report](https://help.holistiplan.com/holistiplan-academy-upload-breakdown?hsLang=en#tax-report)
    - [Scenario Analysis](https://help.holistiplan.com/holistiplan-academy-upload-breakdown?hsLang=en#scenario-analysis)
- [Billing and Subscriptions](https://help.holistiplan.com/billing-and-subscriptions?hsLang=en)
- [User Admin](https://help.holistiplan.com/user-admin?hsLang=en)
- [Tax Reports](https://help.holistiplan.com/tax-reports?hsLang=en#main-content)

    - [Tax Report FAQ](https://help.holistiplan.com/tax-reports?hsLang=en#tax-report-faq)
- [Scenario Analysis](https://help.holistiplan.com/scenario-analysis?hsLang=en#main-content)

    - [General Administration and Editing](https://help.holistiplan.com/scenario-analysis?hsLang=en#general-administration-and-editing)
    - [Business Income](https://help.holistiplan.com/scenario-analysis?hsLang=en#business-income)
    - [Charitable Giving Strategies](https://help.holistiplan.com/scenario-analysis?hsLang=en#charitable-giving-strategies)
    - [Credits and Deductions](https://help.holistiplan.com/scenario-analysis?hsLang=en#credits-and-deductions)
    - [Equity Compensation](https://help.holistiplan.com/scenario-analysis?hsLang=en#equity-compensation)
    - [Filing Status](https://help.holistiplan.com/scenario-analysis?hsLang=en#filing-status)
    - [Range Calc/Solve for Max](https://help.holistiplan.com/scenario-analysis?hsLang=en#range-calc-solve-for-max)
    - [Retirement Plan Contributions and Distributions](https://help.holistiplan.com/scenario-analysis?hsLang=en#retirement-plan-contributions-and-distributions)
    - [Roth Conversions](https://help.holistiplan.com/scenario-analysis?hsLang=en#roth-conversions)
    - [State Taxes](https://help.holistiplan.com/scenario-analysis?hsLang=en#state-taxes)
    - [Strategy Illustrations](https://help.holistiplan.com/scenario-analysis?hsLang=en#strategy-illustrations)
    - [Wages](https://help.holistiplan.com/scenario-analysis?hsLang=en#wages)
    - [Scenario Analysis FAQ](https://help.holistiplan.com/scenario-analysis?hsLang=en#scenario-analysis-faq)
    - [Supplemental Income](https://help.holistiplan.com/scenario-analysis?hsLang=en#supplemental-income)
- [Roth Projection Tool](https://help.holistiplan.com/roth-projection-tool?hsLang=en)
- [Tax Letters](https://help.holistiplan.com/tax-letters?hsLang=en)
- [Explainer Reports](https://help.holistiplan.com/explainer-reports?hsLang=en)
- [P&C Insurance Planning](https://help.holistiplan.com/pc-insurance-planning?hsLang=en#main-content)

    - [Basics](https://help.holistiplan.com/pc-insurance-planning?hsLang=en#basics)
    - [Getting Started](https://help.holistiplan.com/pc-insurance-planning?hsLang=en#getting-started)
    - [Features/Additional Information](https://help.holistiplan.com/pc-insurance-planning?hsLang=en#features-additional-information)
- [Integrations](https://help.holistiplan.com/integrations?hsLang=en#main-content)

    - [Single Sign-On](https://help.holistiplan.com/integrations?hsLang=en#single-sign-on)
    - [API](https://help.holistiplan.com/integrations?hsLang=en#api)
    - [CRM Integrations](https://help.holistiplan.com/integrations?hsLang=en#crm-integrations)
    - [Integrations](https://help.holistiplan.com/integrations?hsLang=en#integrations)
- [Security](https://help.holistiplan.com/security?hsLang=en)
- [Tax Transcripts](https://help.holistiplan.com/tax-transcripts?hsLang=en)

Copyright © 2025, Holistiplan LLC