Sorry, not understanding this at all.
The day you buy an MLP, the purchase price of the units is it's "cost basis".
From that day on, the units receive various accounting items which cause the cost basis to change, mostly lower. For example,tax free distributions reduce your cost basis by the amount of the distribution.
When you buy more units of the same MLP, the purchase price of the new units adds to the cost basis of the total number of units. The "cost basis" of the units is the cost basis of the original lot (which has probably declined from your purchase price as you receive distributions, and other accounting items) and the amount paid for the new units AVERAGED out over the total number of units.
At least that's how the K-1 counts it when you sell some or all of the units. You don't sell specific lots with different cost basises, you sell units with and the K-1 uses the average cost basis of the total units combined.
This all gives me a good hint that I shouldn't be dealing with these financial instruments where I'm out of my comfort zone.-g-
It gives me a hint that the government shouldn't allow trading of MLPs by retail investors if they want accurate tax reporting. I'm fairly certain that 90% of individuals who "trade" MLPs and do taxes themselves probably do it wrong.
Regarding NGL. Assuming the same units are held every year, do you have to pay tax every year on those Box 4bc amounts?
NGL preferreds are MLPs but the taxation is very easy. The distributions (Box 4bc) are taxed like regular income. The preferred stock pay off zero business accounting items, so the cost basis is the purchase price, and they are taxed like regular stocks in that regard.
For regular MLPs it is the "business income" items which cause the complication in taxation. The preferreds don't have "business income" with complex taxation. They only have the Box 4bc income, which is taxed similar to salaried income. |
