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Kinder Morgan Energy Partners Message Board

  • judynmilo judynmilo Oct 24, 2012 12:45 PM Flag

    Retired and planning how to sell MLPs

    So, we're retired, and have a lot in KMP that has been invested for 15 years. Is there a strategy for selling MLPs so one does not get killed tax-wise?

    Sentiment: Strong Buy

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    • I have all my retirement in first a 401K which I converted into an IRA. The difference is that my broker does not withheld taxes at distribution and the bank transfer is free.
      All my capital gain, MLP or US trust distribution etc. are tax free. I pay taxes on my IRA monthly distribution which I control. I am tax free because my distribution is such that I stay below the minimum tax. Does not take a #$%$ degree to figure out.
      Good deal, it works that all I care.

    • There is some reason why you have to sell all, or a major portion of, your KMP investment? Just because you are retired? What constitutes getting "killed" tax wise? Tax rates aren't that bad.

    • also, keep this in mind:
      1) Never sell a portion of your position. Sell it all or sell none of it. This is critical to 'release' your suspended passive losses (treated as ordinary not capital losses) that you want to offset your ordinary gain recapture (due to accelerated depreciation) and likely capital gains (due to your reduced basis created by prior losses (practically guaranteed) and distributions).

    • When you sell, you will pay tax at two different rates.

      1) All of the deferred income (i.e., total of the “Cash Distributions” you received over the years) you have received will be taxed at your income tax rate in the year you sell. Your deferred income is not taxed at a capital gains rate. The K-1 reports this amount.

      2) Any capital gains on the increase in price (i.e., increase over your basis) is taxed at capital gains tax. We all hope we will have a lot of taxable capital gains to be taxed when we sell...meaning we hope we the price will increase a lot by then. Some hope the capital gains tax will be low at that time.

      3) One effective method of permanently avoiding paying tax on all returns is to die.
      Your estate gets a full step-up on both the deferred income and capital gain. Some people believe this strategy has certain adverse personal consequences. Other believe the consequences are desirable.

      You don't have to pay tax on the portion that counts as return of capital. You do have to pay on the other portion but how much depends on what's on the K1.

      Sentiment: Strong Buy

    • You need a CPA, some financial planning and estate planning. You can sell just the KMP when you need to and pay the taxes.

    • I would echo the last comment, you need a CPA. I would be wary of taking advice from some of the posts above as they are way off base and quite inaccurate.