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Subject:  Re: MLP Gifting Date:  10/12/2012  4:18 PM
Author:  irasmilo Number:  116788 of 127642

I've seen directly conflicting advice on the results of gifting MLP shares (assume a low basis after holding for a lengthy time) to charity. One says you cannot write off the full value of the units except to the extent the market price is above the original purchase price. The other says you can deduct the full value of the security the same as with any other donated security.

When you gift MLP "shares", you are not gifting shares, but a fractional operating interest in a business. Hence, the confusion over what the rules are. There are two possibly conflicting rules at play: when you donate ordinary income property, you adjust the FMV of the property by the amount of ordinary income you would report if you were to sell the property. When you donate capital gain property, you can deduct the full FMV of the donated property. When you sell MLP units, part of the sale price is treated as ordinary income and part as capital gain, the specific allocation is provided in the year-end tax packet from the MLP. I don't know how you determine what fraction of your donated units represents ordinary income property and what fraction is capital gains property.

Related question - if you gift MLP shares to a child (assume at or under the allowed gift tax exemption - $13,000 I believe) do they receive the gift on a stepped up basis?

There is no step-up associated with a gift, only a transfer through inheritance. The child assumes your cost basis (assuming the FMV at transfer is greater than your cost basis), but your cost basis isn't what you paid for the MLP units. It is that initial cost adjusted for each of the items reported via K-1 each year that you owned the units. If your adjusted cost basis is greater than the FMV at the time of the gift, the child needs both numbers (FMV and adjusted cost basis) to determine whether there is a gain or loss upon the future sale of the units.

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