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Linn Energy, LLC Message Board

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  • linda_mod@sbcglobal.net linda_mod Dec 10, 2012 11:22 AM Flag

    Question About Tax Advantages of LINE vs LNCO

    I've been thinking of investing in both. Why? Because my LINE units will never be taxed to my beneficiaries after my death (units in partnerships are inherited at their current market value without regard to my cost or previous distributions received). Shares of LNCO are also inherited at current market value but while I am living I will continue to collect LINE's distributions tax free!

    I think the only other differences in the two are this: LINE pays nontaxable distributions vs. LNCO pays taxable dividends. For those who hate dealing with K-1's at tax time, LNCO is an easy solution. I have no problem with K-1's because I use Turbo Tax premium version and that makes it easy to report any taxable things from LINE. Paperwork is only involved for your own record keeping: distributions are deducted from your cost (basis). In a way, distributions are a return of capital to the IRS, yet you don't report that unless your basis is reduced to zero.

    Sentiment: Buy

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    • "Because my LINE units will never be taxed to my beneficiaries after my death (units in partnerships are inherited at their current market value without regard to my cost or previous distributions received). "

      You don't think there's a strong chance that particular rule will be eliminated before your death?
      Don't know how old you are, but I assume there's a high likelihood, the step-up rule will no longer exist by the time I'm gone.

      Seriously, don't count on it. That's a pretty easy 'loophole' for them to plug.

    • Linda, you post, "...My LINE units will never be taxed to my beneficiaries after my death (units in partnerships are inherited at their current market value without regard to my cost or previous distributions received)."

      If this is true, then all elderly LINE/LNCO investors should go with the LINE investment strategy. Taking myself as an example, I'll shortly be 65 years of age. If I stick with my current LINE investment that I made 6 months ago, with a 7.5% dividend rate, then I'll have approximately 13 years of dividends before I reach the cost basis of my investment. That would put me at the age of 78, a little past the average life expectancy for a male in this country. This means that I would receive all the dividends tax-free and then be able to leave the LINE investment to my heirs, tax-free.

      If I switched to LNCO, I'd lose 15% (at current capital gains tax rates) of all my dividends to taxes for that 13 year duration period. And that doesn't make sense, when I have a chance to pay no taxes on the investment.

      Linda, you state that you are qualified to compute your taxes from LINE's K-1. I, myself, have over 5 years of experience with H&R Block and AARP as a tax preparer. So I won't have any difficulty computing taxes for a K-1 either.

      Thanks for your input.

 
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0.180.00(0.00%)May 23 3:59 PMEDT