Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Scary MLPs
Old 03-31-2016, 10:40 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Posts: 1,661
Scary MLPs

I've been reading up on MLPs and finding some info that is a little unsettling.
I'm not real concerned with "return of capital" or the recapture when selling, but other thing I've read online.

For example phantom income that can create taxes
Quote:
Phantom Income and the Problem of Character Mismatch to Partners
MLP investors are familiar with the concept of a “tax shield,” which is often associated with an investment in MLP common units. As partners in an MLP, common unitholders receive allocations of income, gain, loss and deduction with respect to their units. Non-cash deductions, such as depreciation and depletion, often lower the net income allocated to these unitholders to an amount less — in many cases substantially less — than the cash distributed to them. These “excess” cash distributions instead reduce a unitholder’s basis in his or her units, effectively resulting in tax deferral. But, just as non-cash deductions can defer a current tax liability, non-cash income can accelerate it, creating “phantom income.” Simply put, phantom income results in a cash tax liability without a sufficient distribution of cash with which to pay the tax bill. When a partnership has non-cash income, such as CODI, the partners are allocated phantom income. Although the partners receive additional basis in their partnership interests as a result of the income allocation, they often cannot offset the CODI, even if they were to sell their partnership interests at a loss, due to the character mismatch — the CODI is generally ordinary income whereas the loss is generally a capital loss, and capital losses can only offset capital gains.
Other liabilities
Quote:
MLPs make distributions that are similar to dividends, and these are generally paid out on a quarterlybasis. It is important to note that cash distributions are not guaranteed, and every unitholder is responsible for the taxes on his or her proportionate share of income, even if the MLP does not pay a cash distribution.
Although unitholders are generally limited in their liability, similar to a corporation's shareholders, creditors typically have the right to seek the return of distributions made to unitholders if the liability in question arose before the distribution was paid. This liability stays attached to the unitholder even after he or she sells the units.
These are not the only sources. I seen similar info to some of these in articles from AAII and information from other sources.

What "scary" things exist that are not seen with typical purchase of common stock. Sure the value can go to zero, but what else is there that could make this a nightmare investment? I'm assuming what I quoted above is true, but if not I'd like to know. And if it is true, are there limits to how much it can pull from you?
__________________

__________________
bingybear is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-31-2016, 11:04 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,385
Quote:
Originally Posted by bingybear View Post
I've been reading up on MLPs and finding some info that is a little unsettling.
I'm not real concerned with "return of capital" or the recapture when selling, but other thing I've read online.

For example phantom income that can create taxes


Other liabilities


These are not the only sources. I seen similar info to some of these in articles from AAII and information from other sources.

What "scary" things exist that are not seen with typical purchase of common stock. Sure the value can go to zero, but what else is there that could make this a nightmare investment? I'm assuming what I quoted above is true, but if not I'd like to know. And if it is true, are there limits to how much it can pull from you?
It is certainly theoretically true, by the nature of pass through ownership. But I am into my 10th year of owning 3 MLPs , and I have not encountered this.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
MLPs for my circumstances? stephenson Stock Picking and Market Strategy 12 08-22-2015 09:47 PM
What about MLPs Texas Proud Stock Picking and Market Strategy 24 07-31-2015 10:53 PM
What do you think aout MLPs? JockStrap FIRE and Money 17 08-07-2008 06:43 PM
MLPs anyone? Merlin FIRE and Money 2 05-01-2004 06:50 PM
Pipeline MLPs rwwoods FIRE and Money 1 09-02-2003 05:21 PM

 

 
All times are GMT -6. The time now is 08:55 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.