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Kinder Morgan Energy Partners Message Board

  • mike.0204 mike.0204 Nov 16, 2011 7:41 PM Flag

    Tax question

    I'm hoping that this is an easy one.

    Is there a tax advantage to waiting to buy this stock in January instead of at the end of a calendar year?

    I've read a lot of the tax related posts and couldn't decipher if tax liabilities get pro-rated or if the shareholder of record at the end of the year gets hit with a disproportional share of the impact.



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    • for most MLPs there could be a benefit to waiting. It would likely be a small benefit though except in unusual circumstances, and not likely for KMP at all.

      Each month most MLPs allocate the results of the partnership to each investor. When you own the full year your K-1 then reflects the cumulative results from all 12 months.

      However if you buy in November you would get allocated results for November and December only. There would not be any distributions received during that time. You would have to file the K-1 results with your overall 1040 package. If the year's results are uneven month-to-month (which is common for some MLPs) you could end up owning during "unlucky" months when certain financial results "hit the books". Over the course of the full year lucky months and unlucky months would tend to average out, but if you only have 1 or 2 months you could get lucky or not.

      So IF the MLP generated net taxable activities in those 2 months you COULD have to pay some tax without having received any cash to sooth your pain.

      All this is extremely unlikely for KMP though (or at least the taxable amounts would be tiny). KMP is extremely tax efficient, and does not generate net taxable events on their K-1s. I would be very surprised if 1 or 2 months with KMP would be very different. The tiny amount I mentioned are the portfolio returns (interest and qualified dividends). They are usually 1% or 2% of the total distribution on a full year basis. Even if you didn't get a distribution you would still likely see taxable items on Lines 5 and 6 of your K-1...but they would be tiny compared with your investment.