Playbook #028: MLPs (Master Limited Partnerships)
🖼️ The Big Picture
In a world of tortoises and hares… MLPs (Master Limited Partnerships) are the ultimate tortoise. As a hybrid between a partnership and corporate entity, they offer significant tax advantages alongside slow and steady growth for a long-term, relatively low risk investment that normally offers returns well above inflation.
MLPs are limited to exclusively operate in the natural resources and commercial real estate sectors. They don’t pay any federal income taxes, so this change was made in 1987 only 6 years after the first MLP was formed because Uncle Sam was missing out on too much corporate tax revenue.
Similar to REITs (see CAPITALIZE #018 on REITs here), MLPs have to pay at least 90% of their taxable income out to shareholders in interest each year.
MLPs have no employees: the General Partners (GP) usually have 2% equity with an option to increase and are responsible for operations. Limited Partners (LPs) are usually silent, and receive quarterly distributions that are tax-advantaged because they’re mostly a Return of Capital. However, investing directly in an MLP requires that you file a Schedule K-1, which can substantially complicate your tax filings.
🔢 By The Numbers
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