Distributions taxed at dividend tax rate or LT capital gains tax rate? After tax cuts expire, won't LT capital gains tax rate be a lot lower. Thanks.
jrad52..... wrote "You simply adjust your original basis among more shares."
Why isn' the cost of the reinvested shares added to the original basis instead of the added shares diluting your basis? if you were selling specific lots wouldn't you cite their original cost as the basis for capital gain or loss?
There is no cost for the reinvested shares. You are simply issued additional shares. This is not like a DRIP plan where you could get a cash dividend and you choose to reinvest it in more shares. Since you have no opportunity to get a cash dividend, the stock distribution is simply not taxable, and therefore it has no cost to you.
And when you get a nontaxable stock dividend, you are required to allocate your original cost among the larger number of shares you now own.
There appears to be a large consensus of experts that believe even if we don't fall off the cliff (causing LTCG rate to revert to 20%) there will likely be a compromise to raise the LTCG rate to 20%.
Posters please refrain from offering your political opinions. There are many message boards that would appreciate those insightful comments. This board is courteously devoted to investment discussion. Thank you for respecting this.
I don't understand your question. Before or after 1 year, the stock dividends that KMR issues are not taxable at any rate. You simply adjust your original basis among more shares. The new shares take a holding period the same as your original holdings, so after 1 year, you get long-term capital gains taxation (whatever the rate may turn out to be) on any shares you sell.
Or did I misunderstand your question?
Thank you. I get it now. That was the best explanation I have received.
And distributions from KMP are taxed as ordinary income? If so, then why on earth is KMR trading at a discount to KMP? LTCG rate versus income tax rate? Just so you get a distribution paid in cash? Just sell some stock if you need cash. It seems insane to me to own KMP here rather than KMR.