Man bought like 2 weeks ago at 25.50 and dumped at 29.60. Pulled back fri on big up mkt. Lookin to get back in at 27 hopefully. Wish i could make trades like that every week.. I could quit engineering....
Excuse me if you think I'm spamming the board; I am not. I'm just trying to provide some relevant info. that an investor of MLP's might want to know. I can already see that if you are someone who enjoys doing his own taxes with Turbo Tax software or some such thing, then you might want to avoid MLP's. An accountant who knows what he is doing is going to be needed. j.m.o.
Another article that explains MLP's and tax consequences quite well.
"Tax implications for MLPs differ significantly from corporations for both the company and its investors. Like other limited partnerships, there is no tax at the company level. This effectively lowers an MLP's cost of capital, as it does not suffer the problem of double taxation on dividends. Companies that are eligible to become MLPs have a strong incentive to do so because it means a cost advantage over their incorporated peers.
In an MLP, instead of paying a corporate income tax, the tax liability of the entity is passed on to its unitholders. Once a year, each investor receives a K-1 statement (similar to a 1099-DIV form) detailing his or her share of the partnership's net income, which is then taxed at the investor's individual tax rate.
One important distinction must be made here: While the MLP's income is passed through to its investors for tax purposes, the actual cash distributions made to unitholders have little to do with the firm's income. Instead, cash distributions are based on the MLP's distributable cash flow (DCF), similar to free cash flow (FCF). Unlike dividends, these distributions are not taxed when they are received; instead, they are considered reductions in the investment's cost basis and create a tax liability that is deferred until the MLP is sold.
Fortunately for investors, MLPs generally have much higher distributable cash flow than they have taxable income. This is a result of significant depreciation and other tax deductions, and is especially true of natural gas and oil pipeline and storage companies, which are the most common businesses to choose an MLP structure. Investors then receive higher cash payments than the amount upon which they are taxed, creating an efficient means of tax deferral. According to a report by Wachovia Securities, titled "Master Limited Partnerships: A Primer" (2003), the taxable income passed on to investors often is only 10-20% of the cash distribution, while the other 80-90% is deemed a return of capital and subtracted from the original cost basis of the initial investment.
An important side note on the concept of reducing cost basis: If and when the investment's cost basis falls to zero, any cash distribution becomes immediately taxable, rather that being deferred until the sale of the security. This is because the investment cannot fall into a negative cost basis. This can occur if an MLP is held for many years.
Who Should (and Should Not) Own MLPs
MLPs have remained relatively unknown in part because of their low level of institutional ownership and a consequent lack of sell-side attention. Mutual funds were largely restricted from owning them until 2004, but even now, MLPs present a cumbersome investment because funds must send out 1099 forms to their investors detailing income and capital gains in November, but may not receive K-1 statements from MLPs until February. This causes the potential for costly mistakes in estimation.
Tax-exempt institutional investment funds such as pensions, endowments and 401(k) plans are restricted from owning MLPs because the cash distributions received are considered unrelated business taxable income (UBTI) - income that is unrelated to the activity that gives the fund tax-exempt status. This could create a tax liability on any distribution of more than $1,000. This is also true for individuals when holding MLPs in an IRA account; therefore, the best way to hold them is in a regular brokerage account."
An excerpt from a Seeking Alpha article:
"Selling MLPs has implications that many investors don't fully understand. When you sell, depreciation, depletion and other expenses that deferred tax from the MLP's income and its wonderful distributions come back to haunt you as regular income on Form 4797. Here's the key takeaway:
If you have held an MLP for more than a year, expect to pay a lot more than long-term capital gains taxes when you sell."
This has me intrigued as CVRR is my first MLP investment. I guess my question is, are these supposed to be 'buy and hold' forever type of investments as income generators (or at least until your cost basis is zero)? Should you sell them before one year holding period is up? The author of that Seeking Alpha article suggests when you sell if held for longer than a year, your tax rate is going to be quite large.
I'll look for more articles/info on this and post what I find. If anyone here on the board is well versed in this area, maybe he/she could speak up.
I'm not an accountant, but a little research backs up liz's statement. I have a high powered accountant (read that expensive) and will send him an email asking of buying/selling MLP's on a short term basis. I hate the buy and hold mentality too (although I think CVRR is probably one you could hold for at least a year).
Anyways, a quick google check found this:
"The important thing about an MLP, or any partnership, is pass-through taxation. That is, an MLP does not pay an entity level tax the way a corporation does. Rather, the partners--that is you and the other unitholders--are allocated their proportionate shares of all tax items, net them out, and pay the tax on the resulting taxable income. So, you will be allocated a share of the partnership's income, its depreciation deductions, etc. All this is on paper--you don't actually receive an amount equal to your share of income.
You do, however, receive a quarterly distribution, which is like a dividend, except that it is treated differently for tax purposes. Because the partnership doesn't pay a tax, it can pay out more of its income to you in case than a corporation typically can. Instead of being taxed currently, the distribution is subtracted from your basis in your partnership units. When you sell your units, your taxable gain is the difference between your sales price and your adjusted basis, so the tax on the distributions is collected then. While the distributions lower your basis, your share of taxable income and other things increase it, and so it takes longer than you might think to get your basis to zero. If you ever do get to zero, the distributions would become taxable."
Congrats. Nothing wrong with booking profit. I picked most of mine up @27. Think I'll hold this one for a while. Refineries reporting earnings over the next month, and based on the couple that have already reported (and handily beaten) , I can see this getting pulled along for the ride. It's still new and not much DUMB money has picked up on it yet. But who knows...GL
ya mite get it for 27 but the track reacord on these is bout 60% up after ipo not a strate line but it mite get bac to 27 if the other refineries keep screwin up like mexico hess nti and the rest of em than cvrr is goin to have a blowout quarter. like iz the liz says it can be bumpy but they have their shut downs behind em paid off all their debt. also they have 90 mil on the over allotment which is comin bac to us i would suppose in the first divy payment. so in my opinion i believe even at 32 it s goin to be over 19% on the first one and i don t doubt for at least 2 years. by then the world may be over. anyway ya mite wanna hold longer and buy some calls cause for this thing they are dirt cheap