Liza, thanks for your January 2nd reply. What I wasn't taking into consideration was that the day may come when an MLP's K-1 shows ordinary income (from operations), rather than the ordinary loss that most MLP's generate for an investor in the early years of an investment. Yes, if I were faced with paying tax on the ordinary income (which I was thinking of as phoney becasue I didn't get it in the form of cash), I would be glad to apply prior year suspended losses against this income, and reduce my current year liability. If I can keep track of the cash I receive from an MLP over the years, I guess I can keep track of the ordinary losses which are suspended. I don't plan to use turbo tax unless the accounting becomes too much for me to handle. Thanks again.
KMP probably won't be generating positive income, although other MLPs (mostly non pipelines) do. E&P MLPs, for example, typically produce positive income in box 1 of the K-1. But you will need the passive losses when you sell in order to offset some of the gains from your reduced cost basis. So if you do not track the passive losses you will pay more tax than necessary when it comes time to sell your position.
And there's another factor which I am less sure of the details. When your cost basis reaches zero you pay tax (LTCG) on your distributions in the year you received them. However cost basis reaching zero is not as straightforward as it sounds. Non-recourse losses may delay reaching cost basis of zero and I think (but not sure) that if you have passive losses, you can also use those in determining whether you have a cost basis of zero and thus delay paying tax on your distributions. Reason I'm more vague on this is that I'm not down to zero basis on most of my MLPs yet and will check this when the time comes (I may be getting close to zero basis on a few which crashed so low during 2008 like XTEX, APL, EROC that I may have to research this soon - will see what my capital account is on the K-1s coming soon). There have been posts on the Investor Village board (especially those by Rock_n_Rent) which cover the subject in detail.
If you only sell a portion of or mlp you will make your accountant very happy.
Never sell a portion of your position. Sell it all or sell none of it. This is critical to 'release' your suspended passive losses (treated as ordinary not capital losses) that you want to offset your ordinary gain recapture (due to accelerated depreciation) and likely capital gains (due to your reduced basis created by prior losses (practically guaranteed) and distributions).