February 11, 2019

Sales of Publicly Traded Partnerships Are No Easy Task to Report on Your Taxes

Sales of Publicly Traded Partnerships Are No Easy Task to Report on Your Taxes Tax & Business

Sales reporting of publicly traded partnerships (PTP), also known as master limited partnerships (MLP), is governed by the IRS rules and regulations on partnerships. The information reported by most brokers on form 1099 is the original cost basis of the investment in the PTP. Tax law requires that the basis be adjusted each year for income, expenses, and distributions. Fortunately, most PTPs include a “cumulative adjustment to basis” in their K-1 reporting package. The adjustment, when netted against the original cost basis, provides the correct basis to use for reporting the total gains/losses on your return.

Unfortunately, the new reporting requirement is more complicated still. A portion of the gain will most likely be ordinary. That amount is provided by the K-1 reporting package as well. The ordinary portion of the gain is reported on form 4797. The ordinary gain reduces the overall gain on the sale and may cause or increase a capital loss. In addition, the resulting net capital gain/loss can be short- or long- term, based on how long the interest is owned.

On the bright side, if the sale is a complete disposition of the PTP interest, any suspended losses that the PTP passed through in the past can be taken as a deduction in the year of the sale. There are some restrictions if a spouse continues to hold a position in the same PTP.

Generally speaking, the taxation of PTPs is a highly complex subject.

Be sure to consult with your Marcum tax advisor for assistance to make sure you properly report your income and deductions from a PTP.