The losses on your MLP K-1 are trapped. Under IRC §469(k), losses from a publicly traded partnership can ONLY offset income from that same PTP — not your salary, not your other investments, not even income from your other MLPs. EPD losses cannot offset ET income. These suspended losses sit frozen until you sell your entire position. Here’s how the trap works and the one way out.
By Lucas Andersen — Last updated March 6, 2026
IRC §469(k)(1) states that for publicly traded partnerships, “the passive activity loss of a taxpayer shall be determined by reference to items from that partnership alone.” This is the silo rule. Each PTP is its own isolated passive activity “canister.”
This is fundamentally DIFFERENT from regular passive activities. If you own two rental properties, the losses from one can offset the income from the other — they can be grouped and netted under the general passive activity rules of §469. PTPs are specifically excluded from this grouping. Each PTP stands alone. Your EPD losses cannot offset your ET income. Your MPLX losses cannot offset your WES income. Even if both are midstream pipeline MLPs doing nearly identical things, they are separate canisters for tax purposes.
Why does this matter? Because most MLPs generate net losses on your K-1 (Box 1 is typically negative, since depreciation exceeds allocated income). These losses accumulate year after year in your PTP canister, doing nothing. They cannot reduce your salary. They cannot offset your stock dividends. They cannot offset income from another MLP. They are simply frozen.
Each year, your MLP K-1 may show a Box 1 loss. When this loss cannot offset income from the same PTP (because the PTP has no positive income that year, or the loss exceeds the income), it becomes a suspended passive loss. This suspended loss is tracked on Form 8582 (Passive Activity Loss Limitations) and its worksheets.
Key facts about suspended PTP losses: (1) They carry forward indefinitely — they do not expire after a set number of years. (2) They are locked to the specific PTP that generated them. (3) They accumulate silently on your return, growing larger each year your MLP generates a K-1 loss. (4) Your tax software should track them automatically, but you should verify the running balance — errors compound forward.
In a typical year, an MLP unitholder might have $100–$400 of suspended passive losses added per PTP. After 8–10 years of holding, you might have $1,000–$3,000+ accumulated. This balance becomes extremely valuable when you sell.
Suspended passive losses from a PTP are released under one and only one trigger: a complete disposition of your ENTIRE interest in that PTP. “Complete” means all units — not some, not most, ALL. When you sell every unit you own in a PTP in a fully taxable transaction, §469(g) releases all accumulated suspended losses. At that moment, those formerly trapped losses become deductible against any income — including your salary, your stock gains, your rental income, and your §751 ordinary income from the sale itself.
The Partial Sale Trap
Selling 200 of your 500 EPD units does NOT release 40% of your suspended losses proportionally. This is a common misconception. The suspended losses remain fully locked until you sell ALL remaining units. If you sell in multiple transactions, only the final transaction that reduces your holdings to zero triggers the release. This means: if you are considering selling an MLP, selling your entire position in one tax year is almost always better than selling in pieces over multiple years.
All numbers are illustrative. Verify your actual suspended loss balance on Form 8582.
Hold: 500 EPD units for 8 years
Annual suspended passive loss: ~$200/year (Box 1 net loss after income offset)
Accumulated suspended losses: ~$1,600
You sell your entire 500-unit EPD position.
§751 ordinary income from the sale: ~$3,400
Released suspended losses: −$1,600
Net ordinary income after offset: $1,800
Tax saved: $1,600 × 37% = $592 — money you would have owed without the suspended loss release
This is why suspended losses matter most at the moment of sale. They directly offset the §751 ordinary income that hits you at the highest tax rate. The longer you held and the more losses you accumulated, the larger this offset.
If you are a long-term holder: Your suspended losses are accumulating silently and becoming more valuable with each passing year. They are your primary defense against §751 recapture when you eventually sell. Know your balance.
If you are considering selling: Calculate your suspended loss balance BEFORE deciding. It directly reduces your tax bill. If you have large accumulated losses, the sale-year tax impact may be much lower than you expect. And remember: sell ALL units in one year to trigger the release. Partial sales waste the benefit.
If you hold until death: Suspended passive losses are LOST. Under §469(g)(2), they do not transfer to heirs. However, the stepped-up basis under §1014 eliminates the §751 exposure that the losses would have offset. The net result is still overwhelmingly positive for the estate — the basis reset saves far more than the lost suspended losses would have.
If you own Energy Transfer (ET), your K-1 package contains three separate PTPs: ET, USAC, and SUN. Each has its own suspended loss balance. Selling your ET units disposes of all three simultaneously, releasing suspended losses from all three canisters at once. But if you also own USAC or SUN directly, those direct positions have SEPARATE suspended loss balances that are NOT released by selling ET.
Look at Form 8582 in your prior-year tax return, specifically the PTP worksheets. Your tax software should carry this balance forward automatically. If you are unsure whether your software is tracking it correctly, compare the Box 1 amounts on your K-1s for the past several years against the Form 8582 running total. If you switched tax software or tax preparers, the balance may not have transferred correctly — this is a common source of error that costs money at sale.