How are MLP mutual funds taxed?

Once MLPs are wrapped in a mutual fund or an ETF, their distributions are taxed at the fund’s corporate rate, and what is left is paid to shareholders as a distribution. That payment then is taxed as dividend income, thereby effectively nullifying the main reason for investing in an MLP in the first place.

What is the tax rate on MLP distributions?

While MLPs provide tax benefits for US investors, foreign investors can face high tax rates if they invest in MLPs. As a result of US tax law, MLPs are required to withhold taxes from the distributions of foreign unitholders at the highest individual tax rate (37%).

What kind of tax do you pay when you sell a MLP?

Capital Gains Tax. If you held your MLP share for a year or less before you sold it, your profit is considered a short-term capital gain. If you end up with a net short-term capital gain over all of your sales of investment property during the tax year, the IRS will tax the gain at ordinary income tax rates.

What are the taxes on selling a master limited partnership?

If you held your share for more than a year before selling it, your profit will be considered a long-term capital gain. If you end up with a net long-term capital gain for the tax year, your gain will be taxed at lower long-term capital gains tax rates – 20 percent as of 2013.

What happens if you sell your MLP at a loss?

If you sell your MLP shares at a loss and you incur a net capital loss for the tax year, you can deduct up to $3,000 of your loss from your taxable income. If your capital loses exceed $3,000, you can carry forward your excess capital loss to the next tax year, subject to the same $3,000 limit.

How does a Master Limited Partnership ( MLP ) work?

Like a general partnership, an MLP is a “pass-though” taxation entity, meaning the Internal Revenue Service doesn’t tax the MLP itself, only its partners. Thus the MLP avoids the double taxation that many corporations are subject to.