Tax Liability on Publicly Traded Partnership

The negative amount puzzles me. Are you sure you aren't suppposed to adjust that to zero basis and 10,000 of capital gains?

The 2008 EOY Capital Account is -$9,829 according to the K-1 I received from the company (Kinder Morgan). I have not yet received the K-1 for tax year

2009. The Capital Account dropped below zero in 2004. I have assumed that the basis for the stock is equal to the EOY Capital Account (and adjusted to the date of sale). Is that not true? I haven't yet sold this stock but am trying to understand my tax liability when I do.

If you are talking about Kinder Morgan, I guess that is the symbol KMP? That's a master limited partnership (MLP), and you can read a decent summary of tax issues for those here:

With any MLP, once your cost basis goes to zero, the tax-deferred portions of any distributions become taxable *immediately* as capital gains. So I'm wondering if the K-1 you are seeing with a negative cost basis is signaling to you that you have already reached this point? Even though technically cost basis never goes below zero, as a practical matter they may have nowhere else on the K-1 to capture the information about how much you have received in excess of a zero cost basis?

Can someone here clarify for us would tax-deferred portion of any distributions be taxed as long-term or short-term capital gains, after cost basis in an MLP goes to zero?

Yes, it is KMP. I guess the real problem is determining what my current basis is. If it is not the capital account then I'd like to know how to determine it.

Thanks.

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You might look at the example starting on page 36 of the above mentioned PDF to get some ideas on how to calculate current basis.

I sold a pipeline MLP (similar to KMP) in 2008 that was acquired in

2002. What really surprised me was that of the total proceeds of the sale, only 20% was considered capital gain while 80% was ordinary gain. The ordinary gain was reported on 4797 line 10 which was carried over to line 14 of the 1040. I had not realized that the proportion attributable to ordinary gain was going to be that high and so it created a substantial increase on the tax I had to pay over what I expected.

The exact amount that was attributable to ordinary gain was provided in a "Sales Schedule" that accompanied the K-1. It is a worksheet of 10 columns which helps you determine what your total capital gain is. The columns containing "Adjustments to Basis" and "Ordinary Gain" are prefilled in by the partnership. You can Google "master Limited Partnerships" "Sales Schedule" for more help.

In the example shown on page 36 mentioned above, the amount of the distribution considered to be ordinary gain is 70% so I believe I was in the right ball park.

FYIW, I am a taxpayer, not a tax preparer, EA or CPA.

Thanks. After I started this thread, I remembered that I had sold some of my KMP in 2004. In my case, the capital gain was about 60% while the ordinary gain was 40% of the total gain. In looking at the information KMP sent me along with the K-1 to complete my 2004 taxes doesn't give much of a clue how they arrived at the numbers.

I also have some KMP. I sent an email to them asking what would be on the "Sales Schedule" if I sold out my position. No answer yet, not even an acknowledgment of the email so I'm guessing I won't get a response.