For an MLP, is my cost basis for all my positions on my K-1 simply the information in Section L?

[Aquarius5]

I sold all my positions of an mlp this year so I need to correct the cost basis reported by my brokerage on 1099-B. I have the K-1 and I believe I can just use the information in section L to determine my cost basis. I believe I can just add the first 3 lines:

Cost Basis for all shares = Beginning Capital Account + Capital Contributed during the year + Current Year Increase

Is this correct?

[nexchap]

Not quite.  In addition to the lines you mentioned in your question, the "withdrawals and distributions" line also must be factored in because any distributions received prior to the sale will also lower your cost basis (that's the 'distribution' portion of that number).

And then, even if you factored that in, the total gain/loss recognized when you sell a MLP is split into 2 parts:  a portion that is treated as capital gain/loss, and a portion that is treated as ordinary income.  So the cost you enter on your 1099-B will not be anything you got from Section L.

The only way to figure it out is to work from the Sales Schedule that is included in your K-1.  It will give you the total adjustments to apply to your original purchase, and also tell you how to split your gain between 'ordinary' and 'capital'.

[mameier]

So Nexchap my question is if you have owned the shares of the MLP for say 2 years does the sales schedule take into account the distributions received in all years or just the year in which they were sold? Thanks

[nexchap]

The sales schedule will reflect all adjustments for the entire time you owned the MLP.  That includes both distributions as well as any other sources of basis change.

[mameier]

Nexchap, so just to be clear, if I owned an MLP for 5 years and received distributions all 5 years that K-1 sales schedule is used to calculate my cost basis, CG, and OG, and accounts for all the distributions received over those 5 years and I do not need to account for the distributions received in years 1 through 4 to adjust my cost basis further downward?

[nexchap]

That's correct.

[norrisz]

@nexchap NexChap - with my MLP purchase, do i need to track each unit purchase separately? For example, if I buy a series of units and then re-buy more units at a lower price, do I effectively have to treat each unit purchase and the corresponding returns of capital separately? Looking at lowering my cost basis but don't want to face an administrative nightmare. Any reading on this you have come across on this topic?

[nexchap]

@norrisz  If you're absolutely 100% sure you'll never do a partial sale, or do a sale that mixes short and long term, then you don't need to worry about lot tracking much.  But otherwise, you'll definitely want to do lot-by-lot record keeping.

The issue is that any sale you make is required to be proportionally spread across all lots.  As an example, here's a quote that is pretty standard boilerplate on any MLP K-1 when you make a sale:  "The approach in this Sales Schedule treats you as having a “unified tax basis” in the Partnership. This approach is consistent with IRS Revenue Ruling 84-53, which provides that a partner has unified basis in its total partnership interest, and that a partial sale of the total interest represents a partial sale of each portion of the interest acquired in separate transactions up to that point. Each partner must make its own determination of the amount of basis to be associated with units that are sold. The Partnership expresses no opinion on the appropriate methodology to be used in making this determination and has provided this schedule solely as a courtesy. Please consult your tax advisor to obtain advice on how this determination should be made. This schedule is not provided to the IRS by the Partnership"

Most K-1s can be generated to adhere to this, but some don't.  So yes -- administrative hassle.  Maybe not nightmare, depending on how much you enjoy record keeping, but definitely a hassle.