Master Limited Partnerships and affect of completely closing a long held position

[MLP_Banana]

Hello,

I have a question about selling an MLP holding.  I've held an MLP for about eight year, and bought and sold it over this period, but depsite trading I have always had at least a small position.  Today I just sold the last of my units, and I now have zero position in this MLP.

I understand that when an investor completely closes out an MLP holding there are certain tax issues which occur.  Perhaps depreciation recapture is one of them, I'm not really sure, but I'm sure there are tax implications of selling ALL of an MLP as opposed to doing only a partial sale of an MLP holding.

So here's my question.  Later in 2023 can I repurchase (anew!) this same MLP without any tax implications from the repurchase?  In other words, if I decide to buy 100 units of the same MLP before year end, will the tax implications of selling out of ALL of my MLP units today be impacted?  I know that the tax affect of the new units will appear on the K-1, but will repurchase affect the tax treatment of the trade which closed out the position completely during the year?

I hope that makes sense.

[tagteam]

I'll page Champ @Mike9241

[Mike9241]

So here's my question.  Later in 2023 can I repurchase (anew!) this same MLP without any tax implications from the repurchase?  In other words, if I decide to buy 100 units of the same MLP before year end, will the tax implications of selling out of ALL of my MLP units today be impacted?  I know that the tax affect of the new units will appear on the K-1, but will repurchase affect the tax treatment of the trade which closed out the position completely during the year?

Normally a complete disposition, no wash sale, frees up any suspended passive losses. Another tax implication is that your holding period starts anew unless there is a wash sale. if you have a loss on the sale and purchase substantially identical securities within 31 days of the trade date (the date of the sale) the wash sale rules will apply. The other potential tax implication is that many MLPs have ordinary income recapture (form 4797) upon closing out the position that can be substantial. If you sell then with the K-1 will be a supplemental sales schedule that will have your basis and if it applies a column with the ordinary income recapture.  This adds to your tax basis in determining capital gain or loss. Thus in some situations what you thought was a capital gain could be a capital loss and thus the sale and purchase within 31 days would trigger the wash sale rules. The broker will not properly report this on the 1099-B because they don't know your tax basis. On sales of this MLP, the broker probably used type B or E - tax basis not reported to the IRS on the 1099-B because they don't know it so what it reports as your gain or loss is incorrect. 

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You should be able to make a judgment about ordinary income recapture based on the previous sales schedules furnished with the k-1 in the years you sold.    

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from what I have seen, if there is ordinary income recapture it tends to increase the longer you hold the security. I have no way to know for sure if this always applies or even if you'll have such income from the sale. 

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selling with a capital gain might make sense if there is this ordinary income that increases the longer you hold the security. This way this income can get spread out over the the years you sell rather than all in one year.