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Kinder Morgan Energy Partners, L.P. Message Board

  • frankray.9785 frankray.9785 Nov 9, 2011 8:30 AM Flag

    kmr as an investing tool

    I am invested in KMR and love the unit dividends. I have been selling KMR units when I have a capital loss, thereby never paying any tax on dividends if I was invested in KMP. For me it works. Eventually will sell all my KMR position which is not in the near future, at which time I will sell some passive investment property with a huge capital loss.

    KMR units can be used as a good investment tool if someone has a diversified portfolio of investments, meaning just not stocks.

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    • markramey@ymail.com markramey Nov 15, 2011 3:55 PM Flag

      KMR pays in additional shares--it's a DRIP. KMP pays cash which is treated as "return of capital" for tax purposes. Just reduces your cost basis when you sell. No tax liability until then and long-term cap-gain at that point.

      • 1 Reply to markramey
      • KMR is not a DRIP. It is a payment-in-kind dividend system. In a true company sponsored DRIP you are getting paid a dividend, which you are then automatically using to buy new shares (i.e., reinvesting dividends). A DRIP has several tax consequences; you get allocated cash (a taxable event) and then you purchase more shares (increasing your invested tax basis).

        In the KMR PIK dividend no cash ever changes hands; the IRS views it as a mini-split. Your total basis is unchanged, but is now spread over more shares.

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