PAA 20-Year Tax Projection

Assumptions for this projection:

• Position: 500 units at $20 per unit ($10,000 total)
• Distribution: $0.42/quarter ($1.67/year), growing at 8.0%
• Growth source: 5yr CAGR inflated by recovery from 50% cut in 2020. 10yr CAGR is NEGATIVE — current distribution still well below 2016 level ($2.80/yr). Distribution increasing ~$0.10-0.15/year.
• ROC: ~80% of distribution (estimated from historical K-1 data)
• Federal tax bracket: 32% (Married Filing Jointly)
• NIIT: 3.8% on investment income above $250,000 threshold
• §199A QBI deduction: active (20% on qualified PTP income)
• K-1 entities: 1
• Operating states: ~18

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

⚠ BROKER UNDERSTATES YOUR TAX BY $3,989

Basis Erosion — PAA Over 20 Years

Blue line: base case (8.0% growth). Shaded area: sensitivity range. Yellow marker: basis reaches zero in Year 11.

Cumulative Cash vs. Tax — PAA

The growing gap between distributions received and taxes paid is the core value proposition of MLP holding.

PAA 20-Year Projection Table

IRS Partner’s Basis Worksheet — Key Years

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.

Sensitivity Analysis

Sell vs. Inherit in Year 20

Tax saved by holding until death: $5,850 — IRC §1014(a)

Frequently Asked Questions

What is my PAA basis after 10 years?

After 10 years of holding 500 PAA units, your IRS-adjusted basis drops from $10,000 to $324. This is calculated using the IRS Partner’s Basis Worksheet (IRC §705(a)), Lines 1–14, applying 8.0% annual distribution growth and ~80% return of capital.

When does PAA basis reach zero?

At base-case assumptions, PAA basis reaches zero in Year 11. 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.”

How much tax if I sell PAA after 20 years?

If you sell 500 PAA units after 20 years at an estimated market value of $19,898, total tax on sale is $5,850. This includes ~$19,898 in §751 ordinary income recapture (taxed at up to 37%) and $0.00 in long-term capital gains.

Should I sell PAA or hold until death?

Selling in Year 20 triggers $5,850 in taxes. If inherited instead, your heirs receive a §1014 stepped-up basis of $19,898, eliminating all deferred taxes and §751 recapture. The tax difference is $5,850.

What is PAA’s distribution yield after tax?

The nominal distribution yield is 8.3%. 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 16.0%, making the after-tax yield approximately 7.0%.

Should I hold PAA in an IRA?

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 PAA with 500 units generating ~$167 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.

What happens to PAA when I die?

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 $19,898 instead of the eroded basis of $0.00. All accumulated §751 recapture (~$19,898) is eliminated. Tax saved: $5,850.

How complicated is PAA’s K-1?

PAA issues 1 K-1 form per year. The K-1 includes state allocation schedules for ~18 states, which may require additional state tax filings depending on your home state’s de minimis thresholds.

Related Tools & Guides

• Enter your actual position → Portfolio Simulator
• Read the full PAA K-1 tax guide →
• Compare all MLP projections →
• Track your real basis from actual K-1 data → K-1 Basis Tracker