Do I need to file taxes for an MLP if I didn't sell any units?

Yes. Even if you didn't sell, your share of the MLP's income, deductions, and credits is allocated to you on the K-1 and must be reported on your tax return. If the net result is a loss (common for midstream MLPs), it's likely suspended under the PTP passive activity rules, but it still needs to be entered so your tax software tracks it for future release.

Is my MLP distribution taxable?

Not immediately, as long as your adjusted basis remains above zero. Distributions reduce your basis rather than creating current-year taxable income. However, when your basis reaches zero, any further distributions are taxed as capital gain in the year received. The tax isn't eliminated — it's deferred.

Can I deduct MLP losses on my tax return?

Generally not against other income. Under §469(k), losses from a publicly traded partnership can only offset income from that same PTP. They cannot offset your salary, stock gains, rental income, or even income from other MLPs. The losses are suspended until the same PTP generates income to absorb them, or until you dispose of your entire interest in a taxable transaction.

Do I need TurboTax Premier to enter a K-1?

For TurboTax Online, yes — you need Premier or higher. The Free and Deluxe online editions do not support Schedule K-1 entry. For TurboTax Desktop, the Deluxe edition and above support K-1 entry. H&R Block requires Premium & Business or Self-Employed. FreeTaxUSA supports K-1 entry in its paid tier.

How do I find my MLP cost basis if I lost my old K-1s?

Contact Tax Package Support (taxpackagesupport.com) — they maintain historical K-1 data for most major MLPs and can reissue K-1s from prior years. You can also request tax return transcripts from the IRS and reconstruct basis from those records. Your brokerage may have historical distribution records that help fill gaps.

Can my accountant handle MLP K-1s?

Many general-practice accountants are not experienced with MLP/PTP tax issues. The sale of an MLP — with §751 recapture, suspended passive loss release, state allocations, and basis override on Form 8949 — is significantly more complex than a typical stock sale. Ask specifically: "Have you handled the sale of a publicly traded partnership before?"

My broker's 1099-B shows a different cost basis than my K-1 records. Which is correct?

Your K-1-based adjusted basis is almost certainly correct. Brokers don't receive K-1 data and cannot track MLP basis adjustments. On Form 8949, report the correct adjusted basis and use Code B or E to indicate the broker-reported basis is incorrect. This is normal and expected for MLP sales.

What is Form 8949 Code E and why does my MLP sale need it?

Code E indicates a long-term transaction where the cost basis was not reported to the IRS by your broker. Since brokers cannot track K-1 adjustments to MLP basis, they report your 1099-B with Code E. You enter the broker-reported proceeds and provide your own correct adjusted basis. The IRS expects this for MLP sales.

Should I hold my MLP in an IRA or taxable account?

Generally a taxable account is better for MLPs. In a taxable account, you benefit from tax-deferred distributions, the §199A QBI deduction, and the possibility of a basis step-up at death. In an IRA, you lose these benefits and may face UBTI tax if the MLP generates over $1,000 in unrelated business taxable income.

What happens to my Energy Transfer K-1 with three partnerships if I sell?

If you sell your ET units, you are simultaneously disposing of interests in all three PTPs (ET, USAC, SUN). Each entity's Sales Schedule will show its own §751 recapture and gain/loss breakdown. Each entity's suspended passive losses release separately. You'll have three sets of disposition entries in your tax return.

What is the §199A QBI deduction and does it apply to my MLP?

The §199A deduction allows you to deduct 20% of qualified PTP income. It applies to most midstream MLPs. The deduction was made permanent by the One Big Beautiful Bill Act (signed July 2025). Your K-1 Box 20 Codes Z and/or AE contain the information needed to claim it.

What is the difference between tax basis and at-risk basis?

Tax basis (Section 704(d)) determines whether you can deduct partnership losses. At-risk basis (Section 465) is generally the same for MLPs but excludes certain nonrecourse liabilities. For most publicly traded partnerships, the two amounts are identical. This tool tracks tax basis.

K-1 Basis Tracker for MLP Investors

Your broker is almost certainly reporting your MLP cost basis wrong. This tool fixes that — for free — using the exact IRS worksheet the government expects you to maintain.

Works with Energy Transfer (ET), MPLX, Enterprise Products (EPD), Plains All American (PAA), Western Midstream (WES), and any publicly traded partnership.

1. Why Your Broker’s Cost Basis Is Wrong

When you buy shares of Apple or Microsoft, your broker tracks your cost basis accurately. MLP units don’t work that way. Every year, your MLP sends you a Schedule K-1 instead of a 1099-DIV. That K-1 contains income, losses, deductions, and distribution data that adjusts your cost basis — but your broker never sees the K-1.

After five years of holding a midstream MLP, your actual IRS-compliant adjusted basis could be half of what your broker reports. If you sold, your broker would report the wrong gain, and you’d owe significantly more than expected — with part taxed at ordinary income rates up to 37%.

2. How Distributions Silently Erode Your Basis

MLP distributions are not dividends. Two separate things happen each year: the K-1 allocates taxable income and deductions, and the partnership pays you cash distributions. Distributions reduce your basis dollar-for-dollar under IRC §733, but are not themselves taxable as long as they don’t exceed your remaining basis.

When basis reaches zero, distributions trigger capital gain under §731. For a typical midstream MLP yielding 7–8%, basis typically declines 5–8% of original cost per year, approaching zero after 8–12 years of holding.

3. The §751 Surprise — Why Part of Your “Capital Gain” Is Taxed at 37%

When you sell MLP units, the gain is split into two pieces under §751: ordinary income from depreciation recapture (taxed up to 37%) and capital gain on the remainder (taxed at 0/15/20%). You can owe §751 ordinary income even with an overall capital loss.

The §199A QBI deduction (made permanent by the One Big Beautiful Bill Act, July 2025) allows a 20% deduction on qualified PTP income, which may partially offset the §751 tax bite — consult your tax advisor on eligibility and how §199A interacts with §751 in your situation. Your K-1 Box 20 Codes Z and AE contain the information needed to claim it.

4. Energy Transfer K-1 — You’re Actually Tracking 3 Partnerships

If you own ET, you receive one K-1 package but it contains data for three separate PTPs: Energy Transfer LP, USA Compression Partners (USAC), and Sunoco LP (SUN). Each must be entered as a separate K-1 in your tax software with its own EIN. Losses from one cannot offset income from another under §469(k).

5. Multi-State Filing

Your K-1 includes a State Schedule showing income allocated across every state the MLP operates in. States fall into three categories: low/no threshold, meaningful income threshold, and no income tax. Focus on your home state, any state with allocation over $1,000, and the year you sell.

6. The IRS Basis Worksheet, Explained Line by Line

The IRS provides an 18-line worksheet in the Partner’s Instructions for Schedule K-1 (Form 1065). Each line tracks a specific adjustment: beginning basis, contributions, liability changes, income, distributions, loss limitations, and ending basis. The K-1 Basis Tracker implements this worksheet exactly.

7. How to Report MLP K-1 Data in Tax Software

TurboTax Premier or higher is required for K-1 entry online. Check “Publicly Traded Partnership (PTP)” to enable §469(k) rules. Enter Box 20 codes for §199A. For Energy Transfer, enter three separate K-1s. Override broker basis on Form 8949 with Code B or E. Report §751 on Form 4797.

8. What Happens When You Sell — A Complete Example

A detailed walkthrough of selling 1,000 MPLX units: calculating total gain, §751 ordinary income split, suspended passive loss release under §469(g), §199A deduction, and estimated federal tax with comparison to regular stock.

9. Understanding Lot Identification for MLP Units

Under Rev. Rul. 84-53, a partner has a single unified basis. The §751 ordinary income portion is the same per-unit regardless of which lots you sell. However, capital gain may differ by lot based on individual adjusted bases. Tell your broker which lots to sell before placing the trade.

10. Special Situations

Death step-up (§1014) eliminates built-in gain. MLPs in IRAs may generate UBTI over $1,000. Partnership mergers are often taxable events with dedicated K-1 instructions.

11. The Annual K-1 Checklist

A 10-step checklist for when your K-1 arrives: verify Part II, check Item K liabilities, review Box 1/19A/20, check supplemental info for sub-entities and state allocations, enter data in the tracker, export a backup, and file your taxes.

This guide and the associated K-1 Basis Tracker tool provide estimates for educational and informational purposes only. They do not constitute tax, legal, or financial advice. The sale of a PTP interest involves complex tax issues including §751 recapture, passive activity loss release, multi-state income allocation, and basis override reporting. Consult a qualified tax professional before making tax decisions. Lucas Andersen is not a CPA, Enrolled Agent, or tax attorney. Information reflects rules as published in the 2025 Partner’s Instructions for K-1 and the One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025).