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Answers to Recent Questions: Taxes, K-1s, MLPs, and Why These 7 Pipeline Companies

UBTI is often a negative figure. One reason is that depreciation offsets UBTI. However, the longer you hold the MLP the more you "use up" your eligibility for depreciation, and I was shocked to see UBTI of $750 for just 600 shares of OKS in an IRA. This was because it was bought 13-years ago. I had been accustomed to negative UBTI or very small positive figures. The lesson to me was that you may need to swap out your MLPs in IRAs every ten years or so, or get out of individual issues for a while when UBTI starts building up in them. You can get back in to start again with full eligibility for depreciation benefits. The risk of MLPs in an IRA is that you might be libel to having to pay 35% taxes on UBTI in excess of $1,000, and the broker may charge a hefty fee for filing the report and deducting the tax. But exceeding the limit very rarely happens. Another point is that negative UBTI from one MLP offsets positive UBTI from another MLP in the same IRA.