First let me say that I am not a Seeking Alpha fan or subscriber but they keep showing up as a stock news source. In an article by Reel Ken dated 3/26/13 he states that MLP heirs may not get the stepped-up basis as follows: "Ah, but when I die, my heirs receive a step up in basis... freedom at last. I hate to burst this bubble, but this probably isn't so. Though any capital gain portion receives a step-up, items of ordinary income (Annuities, IRAs, Pensions, IRD, etc) are not stepped-up at death. This recapture avoidance "rumor" was started because the Tax Code provides that heirs will not incur the recapture tax when units are transferred to them from the estate. The Code never says recapture is stepped-up. It is silent on a subsequent sale by the heirs.". Is this really true or is Mr. Ken just grabbing headline? I would appreciate this knowledgeable massage board opinion. Thank!
deb - I recently received such a step up in basis. Ken is correct in his literal interpretation of the IRS tax code relating to MLPs but the reality is often something very different.
I do think that this is an area with the steady expansion of MLPs where we will be getting some clarification and new and clearer rules. Currently the IRS people basically have no clue as to what is up.
Ownership of MLP "units" are treated the same as shares in a corporation.They are both capital assets and receive a step-up in basis in the beneficiary's hands. They also receive long term status, (if that matters at the time). You are correct about income instruments: annuities, pensions, etc. I don't know what you are referring to as "recapture". Any strange, goofy tax items, whether income or deductions will be passed through to you on your K-!.
Gobayby...thanks for your reply. Like I said, the Seeking Alpha guy probably has it wrong because when my Mom died I received the stepped up basis (from EPD on K-1 schedule) for her EPD shares and I continued to buy EPD afterwards. I know the tax issues are complex and like Obamacare probably the majority of folks don't understand it. Thanks again!