My Schedule K-1 (Form 1065) is for an Oil Drilling Partnership in the Gulf of Mexico.?

I have ,364 in Box 1 Ordinary business income (loss). A note that came with the K-1 states the following:
State Information-The partnership’s ordinary business income (loss) reported in Box 1 is derived from offshore federal leases located in the Gulf of Mexico, thus, the oil and gas business income (loss) is taxable only to the partner’s resident state.
My questions are: Does this mean that I don’t have to claim this income on my Federal Income Tax Return? How would I accomplish the removing of this income from my Tax Return?

Thanks for any help!!!!

5 Responses to “My Schedule K-1 (Form 1065) is for an Oil Drilling Partnership in the Gulf of Mexico.?”

  1. David S Says:

    Yes you still have to report on federal. Since it is offshore it can be a gray area for the states; that’s what the explanation is about.

  2. Jeff Says:

    You would have to list the amounts from K1 on Schedule E page 2, then transfer to 1040 line 17
    If you have a loss, it will be deducted against other income such as wages, interest, dividends, etc so it would be to your benefit to show it anyway.

    If you don’t want to have this to show, you’d need to sell you share in the partnership.

    The partnership sent K1 information to the IRS so you are required to show the information from your K1 on your tax return.

  3. alikmal Says:

    u r absolutely have to report it on your 1040.

  4. SuzeY Says:

    I think you misunderstood the note. I think the point was to indicate that this is U.S. income, even though it was derived in the Gulf of Mexico. The Gulf of Mexico is bordered by 5 states, if my grade school geography is correct. So, what the partnership note is saying is that instead of needing to file with all five states, it’s sufficient just to file 100% of the income in your home state. Good thing, too-what a pain that would be to do 5 state tax returns! It would cost you more to file than you earned! 😉

  5. WealthBuilder Says:

    Yep, it’s federally taxable. If you live in Texas, there’s no state tax. If you live in Alabama or one of the 41 states that tax income, then it’s taxable on your state return, too.

    Don’t forget a deduction for depletion!

    If you don’t know what I am talking about then:
    A)Hire an Enrolled Agent or accountant to help with your taxes, and
    B)Why are you investing in something you don’t fully understand? What a great way to get burned!

    –A Damn Fine Tax Advisor