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CAUTION

Don’t make this adjustment for costs for which you elected the optional 60-month write-off under section 59(e) for regular tax purposes.

IDCs from oil, gas, and geothermal wells are a preference to the extent that the excess IDCs exceed 65% of the net income from the wells. Figure the preference for all oil and gas properties separately from the preference for all geothermal properties.

Figure excess IDCs as follows.

1. Determine the amount of the estate's or trust's IDCs allowed for the regular tax under section 263(c), but don’t include any section 263(c) deduction for nonproductive wells, then

2. Subtract the amount that would have been allowed had you amortized these IDCs over a 120-month period starting with the month the well was placed in production.