Selling MLP units isn't like selling stock. The tax consequences are dramatically different — and the wrong timing can cost thousands. Here's the decision framework that integrates basis, §751, suspended losses, and estate planning.
By Lucas Andersen — Last updated February 23, 2026
When you sell MLP units, your cost basis isn't what you paid — it's been adjusted by years of K-1 activity. Part of your gain is recharacterized as ordinary income under §751. You may have suspended passive losses that offset the recapture. And the stepped-up basis at death eliminates all of these taxes for heirs.
Factor 1: How far has your basis eroded? Factor 2: How much §751 ordinary income at sale? Factor 3: Your accumulated suspended passive losses. Factor 4: The death step-up option. Factor 5: The opportunity cost of holding. Factor 6: Which lots to sell (FIFO vs. specific identification).
The decision depends on your fundamentals assessment, real basis, §751 exposure, suspended losses, estate planning timeline, and after-tax alternative returns. Run all scenarios with your actual numbers before placing the order.