Question

Donating a MLP to Charity. Tax Free to Donor?

Forum|Forum|5 years ago
December 1, 2020
1 reply
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We have 1,000 share of EPD that we've owned for over 10 years and would like to donate the to our local community foundation, who has agreed to take the units. We understand the charitable donation will NOT be the standard FMV on date of gift since this is an MLP, and that is fine.

Purchase Price $22k

Current value: $19k

Current adjusted basis is $0

Cumulative Passive Losses: $9k

QUESTION: If we make the gift will there be any income that we (the donors) have to report on our return? (In my online research there was one statement without explanation stating that if there was MLP debt then the donor may be liable for taxes).

FYI, controlling modified adjusted income is important to us and thus the reason we are sensitive to whether any income will need to be reported.

Thank you!

Critter-3

Why would you want to donate an investment where you have a loss ? It would be smarter to sell the MLP and give them the money so you can use the PAL you have on the books and the loss on the sale.

Only appreciated investments should be donated.

J

J295Author

Thanks Critter for responding. It's my understanding that if we sold we would have taxable gain as our basis is $0 (due to the MLP making non-taxable distributions over the past 10 years). I haven't gotten granular but suspect it's something like $19k sale price minus $9k cumulative losses (if I can use them) for a $10 gain, part of which may be ordinary income after all the MLP machinations are completed. Thus, the desire to gift to charity.

A

Anonymous

Donated, publicly traded partnerships – in particular master limited partnerships (MLPs) – are an important exception to the typical fair market value deduction for long-term gain securities, as the charitable deduction must be reduced by the amount of ordinary income that would have been realized if the property had been sold at fair market value on the date contributed. For MLPs with substantial accumulated depreciation, this can greatly reduce the charitable deduction. Additionally, if the partnership carries debt (often the case with MLPs), the donor may be liable for taxes if the contribution is treated as a “bargain sale.”

IRS PUB 526 ordinary income property starting at page 11

IRS PUB 544 sale of assets including bargainsales

https://www.irs.gov/pub/irs-pdf/p544.pdf

https://www.irs.gov/pub/irs-pdf/p526.pdf

basis comp worksheet

https://tax.thomsonreuters.com/content/dam/ewp-m/documents/tax/en/pdf/other/quickfinder-updates/qpep-march-updates_comb.pdf

the numbers entered are an example - ignore them

your purchase price (starting basis) is reduced by the cumulative losses and expenses reported (regardless of whether suspended or not due to MLP passive loss rules) and also by distributions and increased by your share of nonrecourse liabilities = adjusted basis

you could have a bargain sale because the FMV (the price you could sell it for) is less than your adjusted basis.