Seeking Alpha
View as an RSS Feed

John D. Thomason  

View John D. Thomason's Comments BY TICKER:
Latest  |  Highest rated
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    The reference refers to the ability of a taxpayer to deduct up to $25000 of rental losses on rental property "with active participation" by the taxpayer from other income, which begins to phase out as modified AGI exceeds $100,000, and is eliminated entirely if it exceeds $150,000. Rental losses on properties for which the taxpayer has no "active participation" are not eligible for the (up to) $25000 deduction against other income, so it is moot in that case.

    John D Thomason
    May 12, 2015. 08:58 AM | Likes Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    Update on Corrections,

    The errors referred to, which all concerned references to Schedule E Columns, have been fixed. Thanks & kudos to the SA Editorial team for their quick response to my somewhat nitpicky corrections!
    May 12, 2015. 08:43 AM | Likes Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    Hi, rip2451,

    Thanks for the additional info. To be honest, I just copied the referenced article's comment on donating MLP units to charity, and had not researched it. Your clarification explains it much more clearly.

    John D Thomason
    May 12, 2015. 08:38 AM | Likes Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    Hi, Mr. McCammon,

    Copied following is my response to Steve021, above, who brought up this subject plus a couple of related questions:

    In researching your questions, I came across an excellent article from Cumberland Advisors that addresses your questions. The link is: http://bit.ly/1FfNd3X

    A couple of snippets from the article are:

    What happens to an estate that holds MLPs and has to determine the amount of estate taxes paid on the value of the estate? Similarly to other investments, the cost basis in an MLP will be reset (or stepped up) to the current market value when the investment is passed on to an heir upon the unit holder’s death. The stepped-up value will be included in the decedent’s estate and may be subject to estate tax, based on the current market value of the investment, just as with other investments. However, because of the potential for tax deferral on MLP distributions, the distributions received during the deceased unit holder’s life may never be taxed.

    This would be one way to beat the tax man - but it is not my preference!

    Hope this helps.

    John D Thomason
    May 11, 2015. 05:04 PM | Likes Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    I had this same question, and the tax authority I was able to consult through my employer clarified it for me. The ordinary income from depreciation recapture is always reported as income on Form 4797, and will be positive. But if there is no gain, but instead there is a loss, based on the sales proceeds and the adjusted basis, then the reported loss will be that loss, plus the loss will be further increased by the ordinary gain reported. Likewise, if there was only a minimal initial gain, but it is outweighed by the ordinary gain reported, the loss will be equivalent to the ordinary gain, less the minimal initial gain.

    John D Thomason
    May 11, 2015. 01:11 PM | Likes Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    Hi, mc2406,

    There is a long list of possibilities for box 20, identified in the IRS "Partner's Instructions for Schedule K-1", codes A through Z. Most of the possibilities would not affect passive income/loss, basis, or at risk, I cannot say for sure that no box 20 items can ever affect them. For example, I think code T, depletion, would affect basis, if a deduction is taken. Some of the more common box 20 items are:

    Code A, Investment Income. Report on Form 4952, Line 4a.

    Code B, Investment Expenses. Report on Form 4952, Line 5.

    Code T, Depletion. A statement will be provided. Refer to the partner’s instructions and Publication 535 to determine if a depletion deduction can be taken. Any depletion deduction taken will decrease basis, I would think.

    Code V, Unrelated Business Taxable Income (UBTI). Only applies if the PTP is held in a retirement account, such as an IRA. If the total of the UBTI of all PTPs in the account exceeds $1000, the account custodian is required to file form 990T, and pay tax on the excess UBTI. The tax paid will be deducted from the IRA holder’s account. Some custodians will charge a fee for filing the 990T, which will also be deducted from the IRA holder’s account.

    Code Y, Net Investment Income. This code may be used to provide the partner with information needed to determine Net Investment Income Tax, per Form 8960.

    John D Thomason
    May 11, 2015. 12:57 PM | Likes Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    Hi, Marooned & April May,

    I have considered this, and I will likely follow through, but not soon. To do justice, the article would need to reference completed tax forms, and could be quite lengthy. It would be a challenge to to present properly on SA, since it would exceed their preferred length maximums - which seems to be par for most articles I have submitted. But certainly, nothing clarifies a topic like this better than an actual example.

    John D Thomason
    May 11, 2015. 12:13 PM | Likes Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    Hi, Steve021,

    In researching your questions, I came across an excellent article from Cumberland Advisors that addresses your questions. The link is: http://bit.ly/1FfNd3X

    A couple of snippets from the article are:

    What happens to an estate that holds MLPs and has to determine the amount of estate taxes paid on the value of the estate? Similarly to other investments, the cost basis in an MLP will be reset (or stepped up) to the current market value when the investment is passed on to an heir upon the unit holder’s death. The stepped-up value will be included in the decedent’s estate and may be subject to estate tax, based on the current market value of the investment, just as with other investments. However, because of the potential for tax deferral on MLP distributions, the distributions received during the deceased unit holder’s life may never be taxed.

    Don’t donate depleted MLPs to charity. Since they have been embedded with unrecognized ordinary income, your deduction would be limited to the stock market appreciation in the shares.

    Plus, though not from the article, I would say do not "gift" units of an MLP to someone - unless it's an obnoxious relative that you want to punish, along with yourself - there is no step-up of basis for gifts - the basis for the recipient is the basis of the donor at the point of the gift. The donor is required to pay any gift tax due and file a gift tax return, if the value exceeds a certain amount, and the recipient would need to deal with all of the subsequent tax issues. It would be a muddled situation for all concerned.

    John D Thomason
    May 11, 2015. 12:04 PM | 1 Like Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    Hi, Grant18m,

    I have always considered that "guaranteed payments" referred to services, and usually would not be applicable to limited partners. The definition from IRS Publication 541 - Partnerships, is:

    Guaranteed Payments

    "Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. This treatment is for purposes of determining gross income and deductible business expenses only. For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. Guaranteed payments are not subject to income tax withholding.

    The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. They are also listed on Schedules K and K-1 of the partnership return. The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income."

    So I see how the payments would be reported as "nonpassive income" on Schedule E. I haven't encountered this situation before, so I must admit I don't know the answer to the basis question. Do you own any "regular" units in addition to the preferreds? I wouldn't think owning the preferreds alone would make you a limited partner at all. I would think that the preferred holdings would be considered a capital contribution to the partnership,and would not be treated any differently than preferreds of a regular C-corp. But as I said, I really don't know. I'm adding this to my list of topics to investigate further. When I learn more, I'll get back to you.
    May 11, 2015. 11:44 AM | 1 Like Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    Hi, alvins,

    Good points. One benefit of the SA community is when others bring up situations that one wouldn't have considered and in fact wouldn't have thought would ever occur unless it was personally experienced. That is how SA can help broaden one's outlook - by making one aware of possibilities without having experienced them first.

    Thanks for your insights.

    John D Thomason
    May 11, 2015. 10:37 AM | Likes Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    My honest answer is I don't know, but my best guess is I would not count on the K-1 or anything else from the partnership. As noted, the Capital Account as shown approximates basis, but it is really up to the partner to track basis and report everything correctly, which would include distributions in excess of basis.

    John D Thomason
    May 11, 2015. 10:08 AM | 1 Like Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    Additional Comment, To All Readers,

    One potential point of confusion that I may have not been clear on is "when passive losses can be used". There are three hurdles: the first hurdle is the passive loss rules for PTPs. But even if this hurdle is "cleared", there are two more: the basis hurdle, and the at risk hurdle. A loss in excess of basis and / or the amount at risk in the PTP investment cannot be "used", even if, per the passive loss rules, it would be allowed.

    The article should have stated this more clearly.

    John D Thomason
    May 11, 2015. 10:02 AM | 1 Like Like |Link to Comment
  • Publicly Traded Partnerships - U.S. Taxation For Limited Partners [View article]
    To all readers,

    Just now awoke (5/11/2015) to see that my article has been published. Thanks one and all for your comments and suggestions. I will take your suggestions under consideration, since I am now focusing on writing about investing and tax implications, as an area where I feel that I may have something worthwhile to contribute to the community of SA.

    I see with some disappointment that the SA Editors, not being familiar with the topic, "corrected" some of the text, and thereby introduced errors. I will make an attempt to work with them to improve the accuracy of the content. The errors are not major, and I don't believe cause misinformation being disseminated, but in the interest of making a confused topic a little less confusing, I would like to fix them.

    To have even a prayer of getting published, I had to delete the K-1 Part III line-by-line review section, which cut the article's length by 50%. I will be able to respond to questions about specific K-1 Part III boxes, if anyone cares to get my take on an item that is unclear to them as to how it should be handled.

    John D Thomason

    May 11, 2015. 09:51 AM | 9 Likes Like |Link to Comment
  • Kinder Morgan: Trees Don't Grow To The Sky [View article]
    Agree completely with your analysis. KMI is my largest holding. Also a KMI pensioner, compliments of Coastal Corp & El Paso corp. For insight and a fascinating story, read "The Smartest Guys in the Room", the story of Enron. Rich Kinder was at one time slated to be CEO after Ken Lay, but Lay never left. So Mr. Kinder left instead, and when the opportunity came, he and his team picked up some great Enron assets at a good price, and KMP was on it's way to greatness. One telling line in the book was that when a former exec who had retired learned Rich Kinder left Enron, he immediately sold all his Enron stock, which was obviously a smart move, way before the fall. Just a little trivia for your readers.
    Mar 12, 2015. 09:29 AM | 16 Likes Like |Link to Comment
  • Seadrill Ltd. Collapses After Suspending Its Dividend [View article]
    Wow. Quite a few comments. If we could get a discussion going about MLPs in IRAs, we maybe could challenge Reel Ken for the comments record on SA!
    Nov 26, 2014. 03:49 PM | Likes Like |Link to Comment
COMMENTS STATS
336 Comments
223 Likes