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Kinder Morgan Energy Partners, L.P. Message Board

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  • rjraecek rjraecek Nov 2, 2012 3:06 PM Flag

    Retired and planning how to sell MLPs

    When you sell, you will pay tax at two different rates.

    1) All of the deferred income (i.e., total of the “Cash Distributions” you received over the years) you have received will be taxed at your income tax rate in the year you sell. Your deferred income is not taxed at a capital gains rate. The K-1 reports this amount.

    2) Any capital gains on the increase in price (i.e., increase over your basis) is taxed at capital gains tax. We all hope we will have a lot of taxable capital gains to be taxed when we sell...meaning we hope we the price will increase a lot by then. Some hope the capital gains tax will be low at that time.

    3) One effective method of permanently avoiding paying tax on all returns is to die.
    Your estate gets a full step-up on both the deferred income and capital gain. Some people believe this strategy has certain adverse personal consequences. Other believe the consequences are desirable.

    You don't have to pay tax on the portion that counts as return of capital. You do have to pay on the other portion but how much depends on what's on the K1.

    Sentiment: Strong Buy


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