Beldin> "LP" does indeed mean "limited partnership." It is a legal term that classifies the way in which a partnership is structured. This structure is certainly recognized for what it is for income tax purposes, but there are no "weird" tax ramifications and it is a legal classification, first and foremost - the tax law is NOT the determinative factor of its existence.
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Beldin,
I am going to have to disagree with you here.
Try this article from Forbes :
Tax Guide To Master Limited Partnerships
https://www.forbes.com/sites/baldwin/2010/12/02/tax-guide-to-master-limited-partnerships/#169d9ffc70d1
How would you like to have income and a tax shelter rolled into one investment? Consider buying some master limited partnerships. These are businesses that are organized as partnerships but act like corporations. You can buy units in an MLP just as easily as buying shares of stock in a corporation.
Most, but not all, MLPs are involved in resource production. Granddaddies of the genre: Enterprise Products Partners and Kinder Morgan, which transport and process fossil fuels. Typical asset: a natural gas pipeline, thousands of miles long, leased out to energy producers and utilities under long-term contracts.
MLPs often pay nice dividends, in the neighborhood of 5%. That’s about what you might get on a real estate income trust. The MLP payout, however, has better tax attributes. Sheltered by heavy depreciation charges, much of the income from an MLP is likely to be treated as a tax-free “return of capital,” at least in the early years you own it.
If the tax accounting is already beginning to sound a little abstruse, get used to it. The price you pay for the tax benefit is complexity. Count on spending a few extra hours doing your taxes (or paying extra to your tax preparer) the year you start reporting MLP dividends. After that, the workload is more tolerable.
In place of the 1099 tax report you'd get on shares of a corporation, you'll get a much longer K-1 from your MLP. If you sell the MLP shares, you'll get a statement explaining how to handle the proceeds on your tax return. It will be a whole lot more complicated than reporting a gain or loss on 100 shares of Chevron.
MLP taxes are a headache, concedes Douglas Rachlin, who runs a portfolio of these investments for wealthy clients of money management firm Neuberger Berman. But worth it. In the 14 years since its inception, his Income Plus portfolio has delivered an 18% annual return, he says, triple that of the stock market.
The next decade probably won’t deliver the same kind of outperformance, given that MLPs, like a lot of income-flavored investments, are now richly priced. Still, Rachlin insists that returns in the range of 10% to 15% a year are plausible.
What about those weird taxes? Whether you do your own 1040 or hire it out, you should have an understanding of the concepts that underlie MLPs. Herewith, a guidebook.
The six topics to be covered:
Flow-through accounting. This is the lens through which the IRS sees partnerships.
Tax basis. This is accounting lingo for how you adjust the cost of an asset so you know what the gain is when you sell.
Return of capital. This explains how the check you get in the mail is not necessarily “income.”
Passive loss rules. These are Congress’s punishment for taxpayers with tax shelters.
Recapture. This beast arises from the IRS depreciation swamp when an asset is sold.
Zero basis. This explains the unexpected consequence of owning an MLP that performs too well for too long.
>>>>
AS I think I said,
The one time I owned some shares of a LP type company,
filing my taxes was proving to be too big a pain in my rump.
Zim.
Mad Poet Strikes Again.
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