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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121114  
Subject: Re: Master Limited Partnerships Date: 8/27/2012 10:16 AM
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I'm doing some reading about MLPs, and I have a couple of tax-related questions. First, is it true that the sale of an MLP will trigger a lot of recapturing (and therefore taxes), especially if the MLP has been held for a long time? Is this equally so whether the MLP has been held in an investment vehicle such as a TIRA or a Roth or a taxable account?

It all depends on the specific MLP, its business, and how all of the accumulated income/expense items have been treated during the period of ownership. A sale within an IRA (any flavor) will be simpler because you don't need to keep track of all of these items.

I see different people recommending different things about putting MLPs in an IRA of any kind; some say that's a good place for them; some say not. Is one of these views the right one -- or could different investors do well either way?

I don't think there is a "one size fits all" answer.

And, if there is this problem about recapturing, suppose I just keep the MLP until I die, using it for income in retirement, and then let it pass to my heirs. Would they get a step-up in basis and be able to turn around and sell it immediately, thus avoiding any recapturing (and tax) problems? If this is my plan, would that help to pinpoint what kind of account would be best (TIRA, Roth or taxable)?

While they would get a step-up in basis, they wouldn't avoid the problems because each day of ownership generates a small amount of every tax-related item on the K-1. Since the estate can't sell on the date of death (since there is no one legally authorized to act on behalf of the estate until the will is probated, or in the case of TOD accounts a certified death certificate is produced), there will always be some level of adjustment required.

I haven't researched the following statement so it may be wrong. There is the risk that they could lose the benefit of accumulated losses which would vanish upon death.

The answer to all of your questions would best be provided by a consultation with a professional tax advisor who could review the entirety of your tax situation.

Ira
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