The MLP Guide: K-1 Forms and UBTI

The Benefit: Tax Deferral

Most of the distribution you receive from an MLP is classified as Return of Capital.

• You pay $0 tax today.
• Your cost basis is lowered by the distribution amount.
• You pay Capital Gains tax only when you sell (or if basis hits $0).

It is essentially an interest-free loan from the government that lasts forever (until you sell).

The K-1 Headache

You will receive a Schedule K-1 form in March/April. You must input this into TurboTax. It adds about 20 minutes to your tax prep time.

Is it worth it? If you have $10,000 invested? Maybe not. If you have $100,000 invested? Absolutely.