500 units of Energy Transfer at $19/unit — IRS Partner’s Basis Worksheet methodology with full citations.
This tool provides projections based on assumptions. It does not constitute tax, legal, or investment advice. Consult a qualified CPA or financial advisor before making decisions based on this output.
Assumptions for this projection:
These are default assumptions based on historical data. For your actual numbers → Enter your position in the Portfolio Simulator
Last computed: 2026-04-03 | Engine: 429 tests passing | v0.1.0
Your broker says
Cost Basis: $9,500
Gain if sold: $9,403
Tax owed: $1,768
The IRS says
Adjusted Basis: $0.00
Actual gain: $18,903
Actual tax: $5,557
⚠ BROKER UNDERSTATES YOUR TAX BY $3,789
Zero-Basis Year
Year 15
20-Year Cash Collected
$18,002
20-Year Federal Tax
$1,980
Effective Tax Rate
11.0%
§751 Recapture (est.)
~$18,903
Estimated — actual determined by MLP sales schedule
§1014 Step-Up Savings
$5,557
Blue line: base case (3.0% growth). Shaded area: sensitivity range. Yellow marker: basis reaches zero in Year 15.
The growing gap between distributions received and taxes paid is the core value proposition of MLP holding.
| Year | Distribution | K-1 Taxable | §731 Gain | Federal Tax | Ending Basis | Cum. Cash | Eff. Rate |
|---|---|---|---|---|---|---|---|
| 1 | $670 | $134 | — | $39 | $8,964 | $670 | 5.8% |
| 2 | $690 | $138 | — | $40 | $8,412 | $1,360 | 5.8% |
| 3 | $711 | $142 | — | $42 | $7,843 | $2,071 | 5.8% |
| 4 | $732 | $146 | — | $43 | $7,257 | $2,803 | 5.9% |
| 5 | $754 | $151 | — | $44 | $6,654 | $3,557 | 5.8% |
| 6 | $777 | $155 | — | $46 | $6,033 | $4,334 | 5.9% |
| 7 | $800 | $160 | — | $47 | $5,393 | $5,134 | 5.9% |
| 8 | $824 | $165 | — | $49 | $4,734 | $5,958 | 5.9% |
| 9 | $849 | $170 | — | $50 | $4,055 | $6,807 | 5.9% |
| 10 | $874 | $175 | — | $51 | $3,356 | $7,681 | 5.9% |
| 11 | $900 | $180 | — | $53 | $2,636 | $8,581 | 5.9% |
| 12 | $927 | $185 | — | $54 | $1,894 | $9,508 | 5.9% |
| 13 | $955 | $191 | — | $56 | $1,130 | $10,463 | 5.9% |
| 14 | $984 | $197 | — | $58 | $343 | $11,447 | 5.9% |
| 15 | $1,013 | $203 | $468 | $148 | $0.00 | $12,460 | 6.6% |
| 16 | $1,044 | $209 | $835 | $218 | $0.00 | $13,504 | 7.7% |
| 17 | $1,075 | $215 | $860 | $225 | $0.00 | $14,579 | 8.7% |
| 18 | $1,107 | $221 | $886 | $232 | $0.00 | $15,686 | 9.5% |
| 19 | $1,141 | $228 | $913 | $239 | $0.00 | $16,827 | 10.3% |
| 20 | $1,175 | $235 | $940 | $246 | $0.00 | $18,002 | 11.0% |
Partner’s Instructions for Schedule K-1 (Form 1065), Worksheet for Adjusting the Basis of a Partner’s Interest in the Partnership, Lines 1–14.
Year 1 — IRS Partner’s Basis Worksheet
| Line 1: Beginning Basis | $9,500 | IRC §705(a) — $9,500 |
| Line 2: Capital Contributions | $0.00 | IRC §722 — $0 |
| Line 3: Increased Liabilities | $0.00 | IRC §752(a) — $0 (no liability increase) |
| Line 4: Income and Gain Items | $134 | IRC §705(a)(1) — $0.27/unit × 500 units = $134 |
| Line 7: Subtotal | $9,634 | IRC §705(a) — $9,500 + $0 + $0 + $134 = $9,634 |
| Line 8: Distributions | $670 | IRC §731 — $1.34/unit × 500 units = $670 |
| Line 9: Decreased Liabilities | $0.00 | IRC §752(b) — $0 (no liability decrease) |
| Line 10: Basis Before Losses | $8,964 | IRC §731(a)(1) — $9,634 - $670 - $0 = $8,964 |
| Line 11: Loss and Deduction Items | $0.00 | IRC §704(d) — $0 |
| Line 14: Ending Basis | $8,964 | IRC §705(a) — $8,964 - $0 = $8,964 |
Year 5 — IRS Partner’s Basis Worksheet
| Line 1: Beginning Basis | $7,257 | IRC §705(a) — $7,257 |
| Line 2: Capital Contributions | $0.00 | IRC §722 — $0 |
| Line 3: Increased Liabilities | $0.00 | IRC §752(a) — $0 (no liability increase) |
| Line 4: Income and Gain Items | $151 | IRC §705(a)(1) — $0.30/unit × 500 units = $150.82 |
| Line 7: Subtotal | $7,408 | IRC §705(a) — $7,257 + $0 + $0 + $150.82 = $7,407.82 |
| Line 8: Distributions | $754 | IRC §731 — $1.51/unit × 500 units = $754.09 |
| Line 9: Decreased Liabilities | $0.00 | IRC §752(b) — $0 (no liability decrease) |
| Line 10: Basis Before Losses | $6,654 | IRC §731(a)(1) — $7,407.82 - $754.09 - $0 = $6,653.73 |
| Line 11: Loss and Deduction Items | $0.00 | IRC §704(d) — $0 |
| Line 14: Ending Basis | $6,654 | IRC §705(a) — $6,653.73 - $0 = $6,654 |
Year 10 — IRS Partner’s Basis Worksheet
| Line 1: Beginning Basis | $4,055 | IRC §705(a) — $4,055 |
| Line 2: Capital Contributions | $0.00 | IRC §722 — $0 |
| Line 3: Increased Liabilities | $0.00 | IRC §752(a) — $0 (no liability increase) |
| Line 4: Income and Gain Items | $175 | IRC §705(a)(1) — $0.35/unit × 500 units = $174.84 |
| Line 7: Subtotal | $4,230 | IRC §705(a) — $4,055 + $0 + $0 + $174.84 = $4,229.84 |
| Line 8: Distributions | $874 | IRC §731 — $1.75/unit × 500 units = $874.20 |
| Line 9: Decreased Liabilities | $0.00 | IRC §752(b) — $0 (no liability decrease) |
| Line 10: Basis Before Losses | $3,356 | IRC §731(a)(1) — $4,229.84 - $874.20 - $0 = $3,355.64 |
| Line 11: Loss and Deduction Items | $0.00 | IRC §704(d) — $0 |
| Line 14: Ending Basis | $3,356 | IRC §705(a) — $3,355.64 - $0 = $3,356 |
Year 15 — IRS Partner’s Basis Worksheet
| Line 1: Beginning Basis | $343 | IRC §705(a) — $343 |
| Line 2: Capital Contributions | $0.00 | IRC §722 — $0 |
| Line 3: Increased Liabilities | $0.00 | IRC §752(a) — $0 (no liability increase) |
| Line 4: Income and Gain Items | $203 | IRC §705(a)(1) — $0.41/unit × 500 units = $202.69 |
| Line 7: Subtotal | $546 | IRC §705(a) — $343 + $0 + $0 + $202.69 = $545.69 |
| Line 8: Distributions | $1,013 | IRC §731 — $2.03/unit × 500 units = $1,013.44 |
| Line 9: Decreased Liabilities | $0.00 | IRC §752(b) — $0 (no liability decrease) |
| Line 10: Basis Before Losses | $0.00 | IRC §731(a)(1) — $545.69 - $1,013.44 - $0 = -$467.75 → $0 (§731 gain: $467.75) |
| Line 11: Loss and Deduction Items | $0.00 | IRC §704(d) — $0 |
| Line 14: Ending Basis | $0.00 | IRC §705(a) — $0 - $0 = $0 |
Year 20 — IRS Partner’s Basis Worksheet
| Line 1: Beginning Basis | $0.00 | IRC §705(a) — $0 |
| Line 2: Capital Contributions | $0.00 | IRC §722 — $0 |
| Line 3: Increased Liabilities | $0.00 | IRC §752(a) — $0 (no liability increase) |
| Line 4: Income and Gain Items | $235 | IRC §705(a)(1) — $0.47/unit × 500 units = $234.97 |
| Line 7: Subtotal | $235 | IRC §705(a) — $0 + $0 + $0 + $234.97 = $234.97 |
| Line 8: Distributions | $1,175 | IRC §731 — $2.35/unit × 500 units = $1,174.85 |
| Line 9: Decreased Liabilities | $0.00 | IRC §752(b) — $0 (no liability decrease) |
| Line 10: Basis Before Losses | $0.00 | IRC §731(a)(1) — $234.97 - $1,174.85 - $0 = -$939.88 → $0 (§731 gain: $939.88) |
| Line 11: Loss and Deduction Items | $0.00 | IRC §704(d) — $0 |
| Line 14: Ending Basis | $0.00 | IRC §705(a) — $0 - $0 = $0 |
| Scenario | Growth | Year 10 Basis | Year 20 Basis | Zero-Basis Year | 20-Year Tax | Eff. Rate |
|---|---|---|---|---|---|---|
| Conservative | 2.0% | $3,629 | $0.00 | Year 16 | $1,617 | 9.9% |
| Base Case | 3.0% | $3,356 | $0.00 | Year 15 | $1,980 | 11.0% |
| Aggressive | 5.0% | $2,758 | $0.00 | Year 14 | $2,847 | 12.9% |
If Sold in Year 20
Market Value: $18,903
Adjusted Basis: $0.00
Total Gain: $18,903
§751 Ordinary (est.): ~$18,903
Remaining LTCG: $0.00
Tax on Sale: $5,557
If Inherited in Year 20
Market Value: $18,903
Heir’s Stepped-Up Basis: $18,903
§751 recapture: eliminated
§731 gains: eliminated
Heir’s Tax If Sold: $0
Tax saved by holding until death: $5,557 — IRC §1014(a)
After 10 years of holding 500 ET units, your IRS-adjusted basis drops from $9,500 to $3,356. This is calculated using the IRS Partner’s Basis Worksheet (IRC §705(a)), Lines 1–14, applying 3.0% annual distribution growth and ~80% return of capital.
At base-case assumptions, ET basis reaches zero in Year 15. After that, distributions trigger §731 capital gains — you owe tax on distributions even though your brokerage statement shows no change. This is sometimes called “phantom income.”
If you sell 500 ET units after 20 years at an estimated market value of $18,903, total tax on sale is $5,557. This includes ~$18,903 in §751 ordinary income recapture (taxed at up to 37%) and $0.00 in long-term capital gains.
Selling in Year 20 triggers $5,557 in taxes. If inherited instead, your heirs receive a §1014 stepped-up basis of $18,903, eliminating all deferred taxes and §751 recapture. The tax difference is $5,557.
The nominal distribution yield is 7.1%. Due to the high return-of-capital percentage (~80%), most of the distribution is tax-deferred. The 20-year effective tax rate on cash received is 11.0%, making the after-tax yield approximately 6.3%.
Holding MLPs in an IRA triggers Unrelated Business Taxable Income (UBTI) under IRC §512. If UBTI exceeds $1,000 in a tax year, the IRA must file Form 990-T and pay tax at trust rates. For ET with 500 units generating ~$134 in annual taxable income, this threshold may or may not be reached depending on the year. Most MLP investors prefer taxable accounts to preserve the §1014 step-up benefit.
Under IRC §1014(a), your heirs receive a stepped-up basis equal to the fair market value at date of death. For this projection, that means a basis of $18,903 instead of the eroded basis of $0.00. All accumulated §751 recapture (~$18,903) is eliminated. Tax saved: $5,557.
ET issues 3 K-1 forms per year (Energy Transfer LP, USA Compression Partners (USAC), Sunoco LP (SUN)). The K-1 includes state allocation schedules for ~41 states, which may require additional state tax filings depending on your home state’s de minimis thresholds.
Computed using the IRS Partner’s Basis Worksheet, Lines 1–14, from the Partner’s Instructions for Schedule K-1 (Form 1065). Every calculated value maps to a specific IRC section, K-1 box, and tax return form line.
Projection engine: 429 test cases passing, last verified 2026-04-03. Engine version 0.1.0.
Built by Lucas Andersen. Proprietary energy trader and direct MLP holder.
Partner’s Instructions for Schedule K-1 (Form 1065) — IRS Publication 541 (Partnerships)