How are PTP units different from corporate stock?
In some ways, they are very similar. They may be bought and sold on the New York, American, NASDAQ, and other public exchanges, and most of them pay a regular quarterly cash distribution. The big difference is that because PTPs are not corporations, they do not pay a corporate tax. Instead, all tax items pass through to the partners. This leaves more of the PTP’s earnings free to pass on to you. Moreover, for most of the time you hold your PTP units, you will not have to pay tax on the distributions the way you do on corporate dividends. They are considered a tax-deferred “return of capital”– that is, payback on your investment. They reduce the basis of your partnership units but are not taxed as current income.
In some ways, they are very similar. They may be bought and sold on the New York, NASDAQ, and other public exchanges, and most of them pay a regular quarterly cash distribution. The big difference is that because PTPs are not corporations, they do not pay a corporate tax. Instead, all tax items pass through to the partners. This leaves more of the PTP’s earnings free to pass on to you. Moreover, for most of the time you hold your PTP units, you will not have to pay tax on the distributions the way you do on corporate dividends. They are considered a tax-deferred “return of capital”– that is, payback on your investment. They reduce the basis of your partnership units but are not taxed as current income. On the other hand, you will be responsible for paying tax on your share of the partnerships taxable income. However, most PTPs pay cash distributions that are well in excess of any tax owed.
