Suggest you start googling and reading up on "selling mlp taxes'.
As a plain old un-credentialed ordinary human, my understanding is that the distributions on MLPs do not count as qualified dividends (so no divy tax), but as a "Return Of Capital". So they reduce your cost basis. If you purchased an MLP long ago for $100, and have accumulated $50 in distributions (per share) since then, your cost basis for long term cap gains would be $CurrShr - $50.
It is entirely possible that if you hold an MLP long enough, the cost basis can go to $0, at which point the tax requirements on the ongoing distributions change. Also, there seems to be an aggregation process used, where the total costs basis of all of your (taxable) account's holdings of an MLP are tracked and represented on the K-1, so you may wish to track cost basis for separate holdings in separate accounts, but the parent MLP may not play along with that in their reporting.
My advice would be to a) research the general consequences so you can make a decision as to whether selling is a good idea or not, and then b) pay a tax preparer to deal (correctly) with the K1s and related paperwork. The cost of getting things right is well worth it. It may seem that you have an inordinately large tax burden when you sell, but keep in mind you've had years of compensating low tax costs.
Finally, if you choose to retain your holding, remember that you can periodically put any MLP holding on a "reinvest" setting, as a way of both bumping the cost basis back up, while further growing the revenue generation base.
Your have all sorts of things mixed up. At the end of the year with MLPs you get a K-1. It will allocate your share of interest income, capital gains, and partnership income or loss. Those K-1 numbers through time determine waht you owe when you sell. Typically about 80- 90% of a distribution is depreciation and classified as return of capital. You need thus to recapture the depreciation on a sale. I suggest the original poster go to the National association of Publically traded Partnerships and read their MLP101 primer.
As a rough example. If you bought NS a while ago for say $20 and you capital account basis (from your K-1) is $10; in a very oversimplified calculation you would owe ordinary income on $10 and capital gains on $30. A MLP deferrs taxes, it does not eliminate them.
from spisam's post
"the full sales price was counted as a capital gain for tax purposes."
Sounds like you did your taxes wrong. What about the ordinary income reported on the sales schedule? Lucky you didn't get audited.