Question

Question on capital gains on Master Limited Partnership preferred stock in a tax advantaged account

Forum|Forum|2 years ago
December 18, 2023
2 replies
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Hello,

I know that capital gains on a Master Limited Partnership (MLP) in a Roth account may result in UBTI income. In a Roth this can result in significant tax obligations if the UBTI amount is great than $1,000.

Does anyone know whether the same thing is true for capital gains from trading preferred stock of an MLP in a Roth? I own some preferred stock of an MLP in my Roth, and it has appreciated significantly. If I sell it, will the capital gain from selling preferred stock of an MLP perhaps be UBTI?

If anyone knows the answer I would appreciate it!

Regards

A

Anonymous_

Employee

I'll page @dmertz

T

TomD8

Employee

Yes, it is possible for some of that capital gain to be treated as ordinary income and subject to UBIT. This web reference provides a detailed explanation of how this can happen: https://seekingalpha.com/article/4415148-your-ira-holds-mlp-beware-of-ubit

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

M

MLP_BananaAuthor

Hi,

Thanks for trying to answer the question and linking to the general article about how investing in an MLP in an IRA can have the UBTI issue.

However, my question is whether capital gains from trading in an MLP's preferred stock can result in UBTI (in a Roth). The owners of the preferred stock are not owners of the partnership, they are lenders to the partnership. Therefore, capital gains from trading in the preferred stock of an MLP may not be the same (in terms of taxes) as capital gains from trading in the preferred stock of an MLP.

However, I'm not sure.

The article you referenced didn't discuss capital gains from trading in the preferred stock of an MLP. Does anyone have any idea?

Regards

M

Mike9241

do you get a k-1 for those preferred shares? if no then there should be no UBIT since you are not allocated a portion of the partnership's income and expenses. if yes, which I believe is the case, then the UBIT will come not from the capital gain portion of the sale but from the same elements that create UBIT for non-preferred shares - -ordinary income and expense recapture.