Sale of Master Limited Partnership (MLP) InterestMaster Limited Partnerships (MLPs) are becoming more and more popular investment options. When you sell your interest in an MLP, the tax reporting can be complicated based upon your unique individual situation. Over the course of your investment in the MLP, you will receive a Schedule K-1 each year reporting your portion of the income from the MLP. In addition to your share of the yearly income, you will most likely receive distributions from the MLP throughout the year. These distributions are generally considered "tax-free" at the time because they are a return of your basis or return of capital in the investment. Therefore overtime, as you receive "tax-free" distributions, you will adjust your basis in the investment accordingly. When you finally decide to sell your interest in the MLP, you will have a taxable gain on the sale. This taxable gain will be the difference between the sales price and your adjusted basis in the investment. Reporting this taxable gain at the time of sale can be confusing.
To enter the capital gain or loss amount on Form 1099-B to transfer to Form 8949 and Schedule D accordingly: