![]() ![]() Note: Return of capital taxes are also due in the event that your cost basis is less than $0. That means taxes for returns of capital are only due when you sell your MLP units. Now here’s the interesting part… Returns of capital reduce your cost basis. ![]() Instead, it is considered as the MLP actually returning a portion of its assets to unit holders. ![]() The cash distributed less the MLPs income is a return of capital.Ī return of capital is not technically income, from an accounting and tax perspective. This means they often have income that is far lower than the amount of cash they can actually distribute. MLPs tend to have lots of depreciation and other non-cash charges. The money passed through from the MLP to unit holders is classified as either: Because of this, MLP investors are called unit holders, not shareholders.Īnd, the money MLPs pay out to unit holders is called a distribution (not a dividend). Instead, all money distributed from the MLP to unit holders is taxed at the individual level.ĭistributions are ‘passed through’ because MLP investors are actually limited partners in the MLP, not shareholders. They are taxed differently than corporations. Master limited partnerships are tax-advantaged investment vehicles. Midstream partnerships have grown to be roughly half of the total number of energy MLPs. Moreover, the energy MLP universe has evolved to be focused on midstream energy operations. One important trend over the years, is that energy MLPs have grown from being roughly one-third of the total MLP universe to containing the vast majority of these securities. The MLP space expanded rapidly until a great many companies from diverse industries operated as MLPs – including the Boston Celtics basketball team. The first MLP was Apache Oil Company, which was quickly followed by other energy MLPs, and then real estate MLPs. MLPs were created in 1981 to allow certain business partnerships to issue publicly traded ownership interests. The History of Master Limited Partnerships
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