Not sure what to do with that Schedule K-1 you received after investing in a master limited partnership (MLP) or publicly traded partnership (PTP)?
MLPs and PTPs are terms used interchangeably for the same type of business structure. Properly reporting the MLP tax on your personal tax return is tricky.
It isn’t a good idea for most taxpayers to try this alone. I have handled thousands of MLP tax K-1s and am ready to assist you with yours.
MLP Profits and Losses Are Reported On Your Personal Tax Return
Many investors are surprised to receive a Schedule K-1 when they invest in an MLP or PTP. The K-1 is the way the partnership communicates to the owner what his share of taxable income or loss is. The items on the K-1 must be included on your personal tax return, so be sure you give the K-1 to your tax preparer.
There are special rules regarding the business losses being passed through an MLP. They have to be deferred until there is income from that same MLP. The losses cannot be used against any other income, even from other MLPs. The losses not allowed are carried over to future years.
More Complications When Selling Your MLP/PTP Investment
Another complication with MLPs is with the sale of all or part of your interest in the MLP. The gain/loss transaction on your broker’s statement is not the whole story. Supplemental information with the Schedule K-1 will contain adjustments to the amount and the type of gain that you have from the sale. In many cases, some or all of your gain will be “ordinary” rather than “capital” gain. Ordinary gain is taxed at a taxpayer’s marginal tax rate, while capital gain (if long-term) is subject to special lower rates. And, capital gain can be netted with capital losses.
Complicated, right? Call me now to book an appointment to let me confidently handle your K-1 properly on your personal income tax return.