Tax Liability on Publicly Traded Partnership

Discussion in 'Tax' started by Bobster, Jan 21, 2010.

  1. Bobster

    Bobster Guest

    I bought shares of a PTP in 1998 for about $20,000. According to the annual
    K1 statement, the capital account is now -$10,000 giving me a $30,000 gain.
    If I were sell all the shares now would the $30,000 be treated as a capital
    gain? Would any of it be ordinary income? Are there any other tax
    considerations on selling these shares?
    Bobster, Jan 21, 2010
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  2. The negative amount puzzles me. Are you sure you aren't
    suppposed to adjust that to zero basis and 10,000 of capital
    Arthur Kamlet, Jan 21, 2010
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  3. Bobster

    Bobster Guest

    The 2008 EOY Capital Account is -$9,829 according to the K-1 I received from
    the company (Kinder Morgan). I have not yet received the K-1 for tax year
    2009. The Capital Account dropped below zero in 2004. I have assumed that
    the basis for the stock is equal to the EOY Capital Account (and adjusted to
    the date of sale). Is that not true? I haven't yet sold this stock but am
    trying to understand my tax liability when I do.
    Bobster, Jan 21, 2010
  4. Bobster

    W Guest

    If you are talking about Kinder Morgan, I guess that is the symbol KMP?
    That's a master limited partnership (MLP), and you can read a decent summary
    of tax issues for those here:

    With any MLP, once your cost basis goes to zero, the tax-deferred portions
    of any distributions become taxable *immediately* as capital gains. So
    I'm wondering if the K-1 you are seeing with a negative cost basis is
    signaling to you that you have already reached this point? Even though
    technically cost basis never goes below zero, as a practical matter they may
    have nowhere else on the K-1 to capture the information about how much you
    have received in excess of a zero cost basis?

    Can someone here clarify for us would tax-deferred portion of any
    distributions be taxed as long-term or short-term capital gains, after cost
    basis in an MLP goes to zero?


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    W, Jan 24, 2010
  5. Bobster

    Bobster Guest

    Yes, it is KMP. I guess the real problem is determining what my current
    basis is. If it is not the capital account then I'd like to know how to
    determine it.

    Bobster, Jan 25, 2010
  6. Bobster

    njoracle Guest

    You might look at the example starting on page 36 of the above mentioned
    PDF to get some ideas on how to calculate current basis.

    I sold a pipeline MLP (similar to KMP) in 2008 that was acquired in
    2002. What really surprised me was that of the total proceeds of the
    sale, only 20% was considered capital gain while 80% was ordinary gain.
    The ordinary gain was reported on 4797 line 10 which was carried over to
    line 14 of the 1040. I had not realized that the proportion attributable
    to ordinary gain was going to be that high and so it created a
    substantial increase on the tax I had to pay over what I expected.

    The exact amount that was attributable to ordinary gain was provided in
    a "Sales Schedule" that accompanied the K-1. It is a worksheet of 10
    columns which helps you determine what your total capital gain is. The
    columns containing "Adjustments to Basis" and "Ordinary Gain" are
    prefilled in by the partnership. You can Google "master Limited
    Partnerships" "Sales Schedule" for more help.

    In the example shown on page 36 mentioned above, the amount of the
    distribution considered to be ordinary gain is 70% so I believe I was in
    the right ball park.

    FYIW, I am a taxpayer, not a tax preparer, EA or CPA.
    njoracle, Jan 27, 2010
  7. Bobster

    Bobster Guest

    Thanks. After I started this thread, I remembered that I had sold some of
    my KMP in 2004. In my case, the capital gain was about 60% while the
    ordinary gain was 40% of the total gain. In looking at the information KMP
    sent me along with the K-1 to complete my 2004 taxes doesn't give much of a
    clue how they arrived at the numbers.
    Bobster, Jan 28, 2010
  8. Bobster

    njoracle Guest

    I also have some KMP. I sent an email to them asking what would be on
    the "Sales Schedule" if I sold out my position. No answer yet, not even
    an acknowledgment of the email so I'm guessing I won't get a response.
    njoracle, Jan 29, 2010
  9. Bobster


    Apr 14, 2015
    Likes Received:
    To calculate the Partner Level Adjustments to Basis (column 7) on the worksheet provided with the 2014 KMP K1 you must complete the IRS worksheet in Partner's Instructions for Schedule K-1 (Form 1065). This is a worksheet you or your accountant should have been keeping and updating with each K1 from the original first purchase of KMP shares. Took me a long time to find this. Hope it helps.
    Rosy, Apr 14, 2015
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