Tax Liability on Publicly Traded Partnership


B

Bobster

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?
 
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A

Arthur Kamlet

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?


The negative amount puzzles me. Are you sure you aren't
suppposed to adjust that to zero basis and 10,000 of capital
gains?
 
B

Bobster

Arthur Kamlet said:
The negative amount puzzles me. Are you sure you aren't
suppposed to adjust that to zero basis and 10,000 of capital
gains?
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.
 
W

W

Bobster said:
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.

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:

http://www.naptp.org/News/Weeklyupdates/MLMLPGuide.pdf
http://www.costbasis.com/otherassettypes/masterltdpartnerships.html

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?

--
W


========================================= MODERATOR'S COMMENT:
Please trim the post to which you respond. "Trim" means that
except for some brief material to provide context for your remarks, the
previous post is deleted. Thank you.
 
B

Bobster

W said:
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:

http://www.naptp.org/News/Weeklyupdates/MLMLPGuide.pdf
http://www.costbasis.com/otherassettypes/masterltdpartnerships.html

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?
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.

Thanks.
 
N

njoracle

Bobster said:
==snipped==

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.

Thanks.
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.
 
B

Bobster

njoracle said:
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.
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.
 
N

njoracle

Bobster said:
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.
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.
 
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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.
 

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