UBTI. Yes, it's profit plus income. My opinion based on my experiences with UAN -- I'm no tax expert.
A recap: What you get with mlp's are distributions. What your UBTI (unrelated business taxable income) is is the income, the distributable amount after subtracting depreciation, etc. With pipeline mlp's they are always doing something with their pipelines and have a lot of depreciation they/you can get from that. Which means for pipeline mlp's you have distributions but very little or no reportable income and thus no or very little UBTI for shares (properly called units) held in tax-advantaged fund. There's a $1000 UBTI thresheld before you (your trustee,the broker) has to pay the tax out of your account.
About "profit". If you sell any of your shares (units) of an mlp in your tax-advantaged fund, that amount is subject ot UBTI. Profit is sales price less adjusted cost of purchase. That adjusted purchase price depends on the amount of depreciation expense that you got the benefit from, and now is recaptured by lowering your purchase price, thus increasing your gain. Assuming you still show a gain after doing this. There may be other aspects to determining "profit" as well - I'm not sure.
Where I'm still lacking confidence and knowledge, is with the pipeline mlp's in my Roth/ira where I've had distributions over several years (no UBTI or negative UBTI) but no sales of units. If my adjusted cost basis eventually falls to zero because of all the distributions (depreciation,et.al.) I've received, must I or trustee become aware of this somehow and then start categorizing further distributions as income (which is UBTI)? Not an issue for me now, but maybe in the future if I keep holding the partnership units. |
