Another thing I've come across with MLP's in taxable account, is there can be a match-up issue if you select which lot of units you want to sell. Yes, you can tell the broker sell lot so-and-so bought xx/xx/yy, and they will report the lot that way in the tax forms they send you. The broker doesn't coordinate with the people who prepare the k-1's though. The k-1 people see a sale, and they automatically allocate to FIFO, regardless of what you told the broker.
Some incorrect stuff in this post.
What the broker reports on your 1099 regarding MLP lots and things is generally not important.
The info on the K-1 is what is used to file your taxes.
The K-1 does not use FIFO. When you sell units of an MLP, the default method on the K-1 is that all the units you own have the same current value, which is the average value of the units at the time of sale. If 100 units are bought for $10 and two years later 100 units are bought for $18, when you sell 1 unit it will use the average value of the 1 unit at the time of sale - the K-1 doesn't allocate the unit value to a specific purchase lot. A partial sale will use the total value of your position divided by the percentage of your units sold.
In this explanation, "value" is not the same as sales price. It's sort of a running changing "cost basis".
The value/cost basis of the units changes over time depending on lots of things, including distributions paid, new units purchased, and other business accounting adjustments which occur over time as you own the units. The "adjustments" as I'm calling them flow into the total position, and not into the individual purchase lots or units.
---
Back to NGL preferreds. None of this matters, because they don't produce business income, the cost basis / value does not change over time, and they act a lot more (and are taxed) like a bond than an MLP, even though they do produce a K-1. The K-1 ONLY has Box 4bc "Guaranteed Payment for Capital" and that amount in that box is equal to the dividends received that year. It's really really really simple. |
