Message Font: Serif | Sans-Serif
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next
Author: khrushchv Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 124982  
Subject: MLP in IRA recapture question Date: 3/6/2013 6:56 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
I've been learning a lot about master limited partnerships (MLPs) lately. I have an IRA that has some units of an MLP. Thankfully this specific MLP doesn't produce year-to-year unrelated business taxable income (UBTI) as UBTI is taxed, even in an IRA for amounts that exceed $1000 per year.

That is nice but, my MLP units do pay quarterly distributions that "adjust" my taxable cost-basis downwards relative to my "original" cost-basis. The difference between my "adjusted basis" and my "original basis" is something called "recapture" and, upon the sale of the MLP units, this "recapture" is subject to taxation, even in an IRA. However, it is my understanding that "recapture" is classified as UBTI. Thus, if one sells MLP units in an IRA, and the "recapture" is less than $1000, then there are no taxes due.

Supposing that the above logic holds, could one use the following strategy to manage their IRA's tax liability: Sell units of the MLP that have a recapture liability of less than $1000. Then hastily re-purchase the same number of units, thereby resetting the "recapture" at $0.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.