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Phillips 66 Message Board

  • sollid_companiess_only sollid_companiess_only Dec 13, 2012 10:15 AM Flag

    There are Many Tax Advantages for MLP Investments

    Especially for the elderly (google tax advantages for MLPs). Many are not familiar with the tax advantages of mlp's, but they may be the most tax advantageous investment on the market, especially for senior citizen investors.

    MLP's generally pay out almost all of their net income in dividends, so they generally pay much higher dividends than stocks. And, for tax purposes, these divvys aren't counted as income, instead they are counted as a 'non-taxable return of capital', a reduction in the cost basis of your investment.

    Not to be macabre, but the mlp investment vehicle could mean that elderly investors end up paying no taxes on their dividend payouts, none at all, if they die before their investment cost basis is reduced to zero. The time period it takes for an mlp to reduce the cost basis to zero is between 13 and 15 years. So, if an investor buys the mlp at, let's say, 65 years of age, then chances are that he/she will die before the cost basis is reduced to zero; many years of tax free dividends. But the neat thing is that the heirs will inherit the mlp investment, tax-free, and they can turn around and sell it tax-free.

    An elderly investor can make higher dividend yeilds with mlps, than with stocks, and also avoid the 15% tax rate on dividend stocks. For more info on the tax advantages of MLPs, just google 'Tax Advantages of MLPs'

    And, the share price of the MLPs generally rises/falls relative to its stock counterpart, in this case PSX.

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    • doesn't matter with IRA's. Better in taxable accounts where you can defer income and CG payments.

    • will PSX share holders automatically receive MLP shares?

      Sentiment: Buy

      • 2 Replies to jgongux
      • sollid_companiess_only sollid_companiess_only Dec 13, 2012 12:28 PM Flag

        "will PSX share holders automatically receive MLP shares?"

        Absolutely not.

      • No. The whole idea of the MLP is to move low return assets to the MLP. They mentioned those in the press release ( Generally pipelines that are needed to distribute product to distribution points and in this case possibly rail cars. They are not the assets that really generate the cash.) The company remains the limited partner initially owning all the units (MLPs call their shares units). They then pay the MLP for the use of the assets, so for example if there are rail cars, then PSX will pay the new MLP for the use of them.

        The real reason you want to do this is to sell a certain amount the units to the public in an IPO and now create a public company. There are all kinds of cash starved folks whose tax situation will allow them to invest in this as described by the original poster. PSX can now take the money they raise and invest in other high return assets like the PSX/CVX chemical company, midstream assets or anything else in the oil/gas/chemical business that has a higher return (I do not see them investing in things outside of their comfort zone). DCP, the company owned by PSX & SE also owns DCP partners. The whole concept allows the company to have a lot of financing flexibility and at the same time build an industrial empire.

        As far back as the 1st conference call the analysts were asking about an MPL possibility (They knew that PSX had experience in MLPs with DCP). The CEO told the analysts at the time that it was a strong possibility and they would probably have some info in December. AT least we can trust the management to honor their promises.

        My only question is where are the knuckleheads that trashed this company at the split. Only goes to show that a lot of people have no idea what they own. The reason they split COP was to unlock value.

        Sentiment: Buy

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