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What Makes a Good Master Limited Partnerships

When comparing MLPs or MLP funds, take a close look at what motivates them. Look at how much the MLP generates and where that money comes from. Ideally, you should invest in an MLP that has sustainable cash flow not only now, but also in the long run. To maintain its transmission status, at least 90% of the MLP`s income must be eligible income. Eligible income includes income from the development, production or transportation of natural resources or real property. In other words, to qualify as a master limited partnership, a corporation must derive all but 10% of its income from raw materials, natural resources or real estate activities. This definition of eligible income reduces the sectors in which MLPs can operate. In the first quarter of 2021, ET managed to generate an additional $3.5 billion in cash flow after paying its payment. And with expansion plans and the acquisition of ENBL helping to further increase cash flow, ET`s dividend could be as good as gold. Although it may be small and limited in concentration, HESM is a powerful MLP player in its niche. Now suppose that the above-mentioned partnership was an MLP taxed as a corporation. Hal would not be subject to the passive loss limitation rules.

Nevertheless, he would not be allowed to deduct a loss of $2,000 from his personal income tax return because the net operating loss would not be paid to the limited partners. Limited partners acquire shares or shares of MLP. In other words, when you invest in a master limited partnership, you provide capital for the operations. Often, the term “silent partners” refers to sponsors. In exchange for your investment, you will receive distributions of MLP`s income. As a rule, distributions are paid quarterly. MLP limited partnerships are listed on the stock exchange. Therefore, you can buy and sell them as a stock or mutual fund. There is a world of investment opportunities that goes far beyond stocks and bonds. One such example is the main limited partnership. Thanks to the Securities and Exchange Commission (SEC), there are restrictions on open-ended funds holding MLPs, so the AMLP had to be structured as a C company.

As a result, AMLP itself is obliged to pay corporate taxes. This can lead to some underperformance compared to its benchmark. However, the 2018 Republican tax reform reduced this factor. In addition, “bad years” can produce tax assets for the ETF, which it can use to offset taxes from “good years.” This has been the case in recent years, given the struggles within the sector. The security of your client depends on the type of limited partnership and the quality of its holdings. Programs aimed at achieving high capital gains involve reasonable risks. For example, with oil and gas MLPs, there may be a risk of finding oil or gas and, if they are found, if the source will dry up sooner than expected. Example(s): ABC Energy Corp. is the general partner of XYZ Main Limited Partnership, which owns pipelines used to transport natural gas. According to the partnership agreement, ABC will receive 2% of MLP`s cash distribution, while the remaining 98% will be distributed pro-rated among sponsors.

However, once MLP`s distribution reaches 30 cents per unit, ABC`s share in that distribution will be increased to 25%. And according to the agreement, if the distribution reaches 50 cents per unit, ABC is entitled to 50% of the distribution. This may limit the return for sponsors. For the same reason, if the payment were to increase from 50 cents per unit to 25 cents, the general partner would feel the effects more dramatically than the sponsors. In some cases, MLP general partners have been accused of making acquisitions just to reach the threshold where the percentage of the general partner`s cash distribution increases, not because the acquisition really benefits the limited partners. Owning an MLP in a retirement account can result in what is called unrelated taxable income or UBTI. If this number exceeds a certain threshold, it is subject to taxes, thus cancelling out a great benefit of a retirement account. .

Preserving the Wealth of Successful High-Tech Community Members
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Preserving the Wealth of Successful High-Tech Community Members
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The BE WISE Planning Strategy
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The BE WISE Planning Strategy
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