"Just a few more shares" has not only a compounding effect but must also consider the additional distributions from those few more shares. I suggest running the numbers with ,say, a hypothetical 1,000 shares that will hit a zero basis in mid 2012. Posit how many new units will need to be purchased by 2017 to maintain tax deferral. There's also the matter of purchasing units with possible money that needs to be used for living expenses.
When you add more shares (units) you can mix them all together within the same partnership. Buying more units puts more space between you and oweing any taxes. Unless my living expenses greatly increase, I hope to stay ahead of the tax man!
Wondering about your hypothetical 1,000 shares: If the partnership pays 7-9% distributions yearly, it would take more than 10 years before your cost or basis would be zero, right?
when your basis is zero, it is then that the excess distributions would be taxed as capital gains, not dividends. Obama probably is going to increase taxes on cap gains, much more than on dividends...but I'm guessing. IF new tax laws are greatly changed, it may cause a shock to the markets and we could see another crash like in 2008. I think politicians know this though.
Replying to norrishappy above: The calculations to determine what part of your social security is taxable do not consider "distributions" as nontaxable income. Why? They legally are not income. They are a return of your capital. That's why you have to keep track of all distributions and subtract them from your cost.
Too many millions of investors own partnership units, and most partnerships are energy related. To take away the benefits of investing in them would cause chaos! I doubt even a socialist like Obama would tinker with this tax law!
I agree, But when it comes to policy I can not think of any prudent and mature action Obama has taken.
Well to remember that when Mr. Hamm - Continental Resources, Inc. (CLR) - told Obama America could be energy self sufficient Obama replied not important as Phd Chu assures me wind mills, solar panels and bio-fuel will make it unnecessary.
We are not dealing with a rational force in Obama or Pelosi or Reid.
I was referring to the distributions from the partnership. I do not own shares of LNCO.
Yes, so far I have paid no taxes on the distributions from any of the partnerships I invested in. I am a long way from recapturing my investments. When I need cash and decide to sell units, that's when I probably will owe taxes, but they will be capital gains taxes. (LNCO pays dividends which are taxed in the year you receive them.)