Why would that be ??
I'm guessing this has been much discussed in the past, but I missed it.
I'm probably testing this board's patience, but I have KMP in my IRA, and I need to know.
Thank you for your forebearance.
I don't know whether KMP is a problem but I understand KMR is not a problem in an IRA( not sure, perhaps someone more knowledgable could confirm this)
KMR is a shadow stock for KMP. The difference is that KMR pays the dividend in additional stock whereas KMP pays in cash. KMR is also good in taxable acct as the dividends ( ie additional stock) is not taxed. You pay cap gains tax when you sell.
KMR pays the same dividend as KMP but sells at a discount to KMP, hence a higher yield.
disc: I hold KMR in a taxable acct.
For no tax hassles in an IRA buy KMR since it masks UBTI issues with KMP. Why take the risk of triggering UBTI and all that entails?
If you don't like dealing with K-1's in a taxable account and don't need the distributions, buy KMR in a taxable account.
My family has KMR in IRA accounts and KMP in non-IRA accounts. K-1's are not that bad when you use tax preparation software (or have a competent person doing your taxes).
A MLP held in an IRA is subject to the unrelated business income test. If you generate more than $1,000. per year in KMP distributions you are in unrelated business income land. The way to hold MLP's are in taxable accounts since most of the distribution is tax deferred due to depreciation, etc.
Thats actually incorrect. The $1000 or more would have to show up in Box 20V which usually equates to Box 1 which are the earnings for the MLP. Distributions received are irrelevant to UBTI.
Also , I've not seen a definitive answer to the question of combining UBTI across the same MLP from year to year (ie. is it a $1000 of cumulative UBTI)or combining UBTI across MLPs from the same year. (EPD and ETP usually generate large negative UBTI - can you net those with an MLP generating positive UBTI in the same year?)
sainai - my fellow Realty Income investor - positive UBTIs above $1,000 DO MATTER [and are taxable income] in an IRA - which is why I am collecting the data. And that is why I posted links to three MLP Primers from sources that one should know and recognize - because this [earnings being tax while held inside the IRA - and not just taxed upon their removal] does go against everything that most investors have been taught - Positive UBTIs do matter.
I am not asking to be believed - but I am requesting that you read sources that you would know and trust - Merrill Lynch, Wachovia and Raymond James - where you will find this information. The primers are long - but that are search-able. Search for UBTI - and you will find this information. Search for UBTI on this message board - and you will find prior messages on this topic.
The problem of MLPs generating UBTIs when held in an IRA is addressed in 100s of messages. One should search for both UBTIs and UBIT [unrelated business taxable income and/or unrelated business income tax] on the major MLP boards - KMP, EPD and ETP.
This issue is covered in the MLP primers
The Merrill Primer is at http://www.naptp.org/News/Weeklyupdates/MLMLPGuide.pdf
The Wachovia Primer is at http://www.naptp.org/documentlinks/05Wacovia.pdf
The Raymond James Primer is at http://www.naptp.org/documentlinks/RaymondJamesGuidetoMLPs.pdf
All of these are very long documents - but they are searchable - so search for "IRAs" or "UBTI"
I am gathering UBTI data on the IV board - which is at http://www1.investorvillage.com/smbd.asp?mb=5028&clear=1&pt=m
The 2006 UBTI data is at http://www1.investorvillage.com/smbd.asp?mb=5028&mn=578&pt=msg&mid=3324357
mansfieldjordan posted that UBTIs are 'no problem'. While this answer is about 80% correct [approx 80% of MLPs produce negative UBTIs in any given year] - the 20% of the time that such an answer is wrong makes this advice very dangerous. As few as 500 units in PAA and or ETP held for the full year in 2006 could have produced UBTIs over the taxable threshold. KMP produced negative UBTIs in 2006 and I project it will do so in 2007. So there is a trend that UBTIs are not a problem for KMP investors.
It is probable that several investors who have had money in MLPs for several years have never run across positive UBTIs. So one can frequently receive well meaning messages that UBTIs are not a problem. We MLP investors need a large data base on which to make such a judgment. I am trying to create such a data base on the IV message board.
I am gathering this data to see if UBTIs are predictable. It appears that they are 80% predictable [those MLPs which have higher distributions per unit than earnings per unit strongly tend to produce negative UBTIs] - and UBTIs do turn out to be about 80% negative. [And you do not pay taxes on negative UBTIs - but a negative UBTI from one holding can not be used to offset a positive UBTI from another holding. It is my expectation that a negative UBTI from one holding can be used to offset a positive UBTI in that same holding in a future year - but the tax law is expressed in fuzzy language - so that point is unclear.] The MLP primers warn investors of the danger of holding MLPs in IRAs - but none of them quantify the threat of having to pay taxes. I am attempting to do that.
So I am soliciting data from volunteers - those who will share their UBTI data - which is line 20V on the K-1. The K-1's generate a UBTI number - even for those who do not hold their MLPs in an IRA. The volunteers are giving their data in terms of 'UBTI per 100 units' - so there is no disclosure of the number of units that they own.
I believe that all MLP investors will find this information of value - and I hope that all who read this will volunteer their data.
This is a little input for your UBTI data base.
My 2007 K-l from Kinder Morgan, line 20V shows -1,287 and I have no idea how that actually affects my Federal Income Tax. I just enter it when Turbo Tax asks for it. Good luck on your project.
Find yourself a chunk of time, and search the KMP board for "UBTI". There are a lot of good posts, and some links to good articles. Also a lot of plain wrong misinformation. There is no fact checker on what people post ); although the self correcting mechanism of a follow-up "you are wrong, accountant breath" helps a lot.
There are several different issues to learn about and consider;
1. Tax law and tax liablity (who pays, how much and when)
2. Reporting issues (again, who and when)
3. Investing in tax-advantaged MLPs inside an IRA/401k
1 & 2 a factual issues you MUST understand (at least the bare bones). These are also the ones most commonly mis-presented both here on the Yahoo board and also in articles in the press and from brokerages.
3. is an investing strategy issue. Oddly enough, unlike anything else in the investing world, opinions differ. More importantly, situations differ...yours is not like mine nor the next guys. Right (or at least reasonable in our risky world) for you may make no sense whatsoever for the next guy.