Tax basics for MLPs

[dan_s]

In my opinion, the author makes this sound a lot more complex than it is. Of course, I have a masters in taxation so maybe I’m not the best person to ask. If you own an MLP you get a K-1 and if you use Turbo Tax to do your return it is very easy. Just enter the line items from the K-1 where Turbo Tax tells you and you’re done. You do need to keep track of your adjusted tax basis but it is no big deal. Actual distributions from the MLP in excess of the allocated income are a return of capital and reduce your basis.

http://blogs.forbes.com/baldwin/2010/12 ... r=yahootix

State income taxes can be a big deal for an investor that puts a lot of money into MLPs. For small-time investors like me, I just ignore them. Thank God we live in Texas with no income taxes.

[mdwitte]

...another topic is the value of holding MLPs in IRAs...what is your opinion of this, Dan? I've been doing it for several years, but my holdings are fairly small, so haven't had any UBTI problems...yet...

[dan_s]

Other than the restriction that you can only have $1,000/year of unrelated business taxable income (UBTI) in an IRA there is no problem holding them in an IRA. Keeping them in an IRA does eliminate a lot of the tax reporting issues.

Investors should keep in mind that the UBTI is a much smaller amount than the distribution you receive and it does not include any increase in the unit prices.

Our "MLP Watch List" came out on August 26. As of the December 3 closing prices, the portfolio is up 12.63%.
> EVEP (my favorite) is up 29.7%
> LINE is up 28.6%
> NRP is up 25.2%

Matt Denegre, an SMU graduate student, tracks the MLP's for us. He is currently working on a profile for GEL, an MLP that was created by Sweet-16 member Denbury Resources (DNR). It is a midstream MLP with a lot of upside.

Dan