MLP's and taxes

[lawman]

I'm told that if I buy an MLP such as EPD that for the most part my distributions are tax deferred. I'm also told that if I die without selling that MLP that my heirs will likely avoid paying a lot of tax because their base becomes what the value is at the time they inherit it..Two questions; 1. How and when are distributions taxed & 2. How are taxes and distributions treated if inherited?

[haha]

Quote:

Originally Posted by lawman I'm told that if I buy an MLP such as EPD that for the most part my distributions are tax deferred. I'm also told that if I die without selling that MLP that my heirs will likely avoid paying a lot of tax because their base becomes what the value is at the time they inherit it..Two questions; 1. How and when are distributions taxed & 2. How are taxes and distributions treated if inherited?

Your first statement is only partially true. Once you have owned a successful MLP for awhile, your taxable income may catch up with and perhaps even surpass your payouts. It as a tricky area, and overall I think not worth the trouble and risk for anyone other than a very well informed and highly motivated investor. I bought them because they cratered in 2008. They have overall done well, some spectacularly, but so have many other issues and every time I understand a new aspect of taxation, including taxes that may be owed to a bunch of states where you have never lived or worked, but where the MLP has operations, I have another "oh-sh! moment

I speak from some experience with these things.

Ha

[aja8888]

Tax treatment:

http://www.naptp.org/PTP101/Print/Ba...Principles.pdf

Inheritance:

"If a unitholder dies and the units pass to his heirs, the basis is reset to the fair market value of the units on the date of death, and the prior distributions are not taxed."

[lawman]

Quote:

Originally Posted by haha every time I understand a new aspect of taxation, including taxes that may be owed to a bunch of states where you have never lived or worked, but where the MLP has operations, I have another "oh-sh! moment I speak from some experience with these things. Ha

Sounds like a bad nightmare...

[aja8888]

I hold my MPLs in a tax deferred account (IRA). Schwab, in particular, does the tax tratment and filing for me as all I have to do is send them the K-1 information. You may wish to investigate holding MLP's in tax deferred accounts rather (or along with) holding them in taxable accounts.

[haha]

Quote:

Originally Posted by aja8888 I hold my MPLs in a tax deferred account (IRA). Schwab, in particular, does the tax tratment and filing for me as all I have to do is send them the K-1 information. You may wish to investigate holding MLP's in tax deferred accounts rather (or along with) holding them in taxable accounts.

Is the only issue here unrelated business taxable income?

Ha

[FIREd]

I own a few MLPs. Tax time is not fun, especially if you trade them a lot, which I avoid doing. But the tax-deferred (for now) income makes it worthwhile because I am currently in the top tax bracket. I also like the fairly stable income provided by midstream MLPs, though the recent implosion of BWP was a good reminder that you can't take anything for granted.

[aja8888]

Quote:

Originally Posted by haha Is the only issue here unrelated business taxable income? Ha

Yes, from what I can tell. I don't hold enough of any one MLP in my IRA to get anywhere near the $1,000.00 of UBTI to have to report on. I would assume that if a MLP ever exceeded the $1,000.00 UBTI, then Schwab would just pay it out of my account. I have not sold any MLPs in an IRA either, but I assume any gains along the way or in a sale would be not taxable.

I did have a few MLPs in a taxable account but sold them all at a good profit within the last three years and paid the tax due.

While I like to invest in the energy business, I am pretty careful on choosing MLPs and make sure they are solid companies, transportation related and not in crude or natural gas production.

[haha]

Quote:

Originally Posted by aja8888 Yes, from what I can tell. I don't hold enough of any one MLP in my IRA to get anywhere near the $1,000.00 of UBTI to have to report on. I would assume that if a MLP ever exceeded the $1,000.00 UBTI, then Schwab would just pay it out of my account. I have not sold any MLPs in an IRA either, but I assume any gains along the way or in a sale would be not taxable. I did have a few MLPs in a taxable account but sold them all at a good profit within the last three years and paid the tax due. While I like to invest in the energy business, I am pretty careful on choosing MLPs and make sure they are solid companies, transportation related and not in crude or natural gas production.

Thanks aja8888.

[RE2Boys]

Last I looked at the tax ramifications of MLPs (if my memory is right) they usually distribute way more than is taxable income in most years. However, when you sell them, you have to go through a special calculation that's in the fine print attachments to adjust your basis (cost) in the partnership. Then part of the gain on the sale is taxable as ordinary income, and the rest as a capital gain/loss.

[CoolChange]

This thread has convinced me that I do not need to research MLP's any further.

Thank you.

[aja8888]

Quote:

Originally Posted by CoolChange This thread has convinced me that I do not need to research MLP's any further. Thank you.

You could always buy the Alerian ETF : Alerian MLP ETF

Remember: Pigs clean pipelines...

[lawman]

This is giving me a headache

[lawman]

I think a small play would be better suited with an ETF for simplicity but with as much difference as there seems to be between performance a pure MLP holding seems much better..I just dunno if it's worth the headaches..

[aja8888]

Quote:

Originally Posted by lawman I think a small play would be better suited with an ETF for simplicity but with as much difference as there seems to be between performance a pure MLP holding seems much better..I just dunno if it's worth the headaches..

If taxes are your issue, you can buy a stock like KMI (kinder Morgan, Inc), which is the parent to the MLPs. KMI yields around 5% and is not subject to MLP tax handling. Kinder Morgan has been beaten up recently due to negative press about pipeline maintenance (maybe not accurate) and the stock is down 20%.

[lawman]

Quote:

Originally Posted by aja8888 If taxes are your issue, you can buy a stock like KMI (kinder Morgan, Inc), which is the parent to the MLPs. KMI yields around 5% and is not subject to MLP tax handling. Kinder Morgan has been beaten up recently due to negative press about pipeline maintenance (maybe not accurate) and the stock is down 20%.

That's good info..Did not know they paid that much dividend..