The AMLP dividend tax treatment works like this: because the Alerian MLP ETF is organized as a C-corporation rather than a pass-through fund, it pays 21% federal corporate income tax on its own earnings first, then sends shareholders a standard Form 1099-DIV. Most of what you receive is classified as ordinary income and taxed at your regular federal income tax rate. A smaller portion is usually classified as return of capital, which isn’t taxed when paid but reduces your cost basis in the shares. There is no Schedule K-1 to deal with.
How AMLP Distributions Are Classified
The 1099-DIV you get from your broker splits the distribution into boxes that determine how each piece is taxed. Ordinary dividends land in Box 1a, with any qualified portion broken out in Box 1b. Return of capital appears in Box 3 as a nondividend distribution.1Internal Revenue Service. Instructions for Form 1099-DIV2Internal Revenue Service. Form 1099-DIV – Dividends and Distributions
There’s a common assumption that MLP-focused funds distribute mostly return of capital. For AMLP, that hasn’t been the case recently. Based on the fund’s 2025 distribution data, roughly 93% to 95% of each quarterly payment was classified as ordinary income, with only about 5% classified as return of capital.3ALPS Funds. Alerian MLP ETF The split can shift year to year with the fund’s taxable income, realized gains, and the depreciation flowing up from its MLP holdings, so don’t assume the bulk of the income is tax-deferred. Check the fund’s distribution history on the ALPS Funds website before estimating your liability for the year.
Unlike direct MLP ownership, AMLP does not send a Schedule K-1. The 1099-DIV typically arrives from your broker by mid-February and slots into your return the way any other stock dividend would.
Tax Rates on the Ordinary Income Portion
Because most of an AMLP distribution is ordinary income, most of it is taxed at your regular federal income tax rate. For 2026, those rates range from 10% to 37% depending on filing status and taxable income.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 For a single filer, the 37% rate kicks in above $640,600; for married couples filing jointly, above $768,700.
Any portion reported in Box 1b as a qualified dividend gets the preferential long-term capital gains rates instead. For 2026:
- 0% on taxable income up to $49,450 for single filers or $98,900 for married filing jointly.
- 15% on taxable income from $49,451 to $545,500 for single filers or from $98,901 to $613,700 for married filing jointly.
- 20% on taxable income above those thresholds.
To qualify for those lower rates, you have to hold the shares for at least 61 days during the 121-day window that starts 60 days before the ex-dividend date.5Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed Miss the holding period and dividends that would have qualified get taxed as ordinary income. Buy-and-hold investors rarely trip on this; frequent traders should watch it.
The 3.8% Net Investment Income Tax
Higher-income investors face an additional 3.8% surtax on net investment income, including dividends and capital gains from AMLP. It applies when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.6Internal Revenue Service. Topic No. 559, Net Investment Income Tax Those thresholds are not adjusted for inflation.
For someone in the top ordinary income bracket, the effective combined federal rate on AMLP’s ordinary income can reach 40.8%. Qualified dividends taxed at the 20% capital gains rate effectively become 23.8%. That matters when comparing AMLP’s headline yield to other income investments.
How Return of Capital Adjusts Your Cost Basis
The portion of the distribution that shows up in Box 3 isn’t taxed when you receive it. Instead, you reduce your cost basis in the shares by that amount.7Internal Revenue Service. Topic No. 404, Dividends and Other Corporate Distributions Buy shares at $40 and receive $2 in return of capital over time, and your adjusted basis drops to $38. The tax is postponed, not eliminated.
This downward adjustment continues with each return-of-capital distribution until your basis reaches zero. After that, any further nondividend distributions are taxed as capital gains in the year received.8Internal Revenue Service. Mutual Funds (Costs, Distributions, Etc.) When you eventually sell, your gain is calculated against the lower adjusted basis, so the taxable gain is larger than raw price appreciation would suggest.
At AMLP’s recent return-of-capital rate of around 5% per distribution, it takes years of holding for basis erosion to get dramatic. Investors who held during earlier periods when the return-of-capital share was higher should review adjusted basis carefully before selling. Your brokerage may or may not track these adjustments accurately, so keeping your own records is worth the trouble.
Why the Fund Pays Tax Before You Do
AMLP invests almost entirely in master limited partnerships, which prevents it from qualifying as a Regulated Investment Company under Subchapter M.9Office of the Law Revision Counsel. 26 USC 851 – Definition of Regulated Investment Company So it is organized as a C-corporation instead, and the fund itself is a taxpayer subject to the flat 21% federal corporate income tax on its net income. When the underlying MLPs send cash up to AMLP, the fund accounts for its own tax obligations before distributing anything to you.
That creates a persistent gap between the underlying MLP index and what shareholders actually earn. The fund accrues a deferred tax liability tied to unrealized appreciation and the income it receives, and that liability gets baked into net asset value each day, pushing NAV lower than it would be in a tax-free structure.10U.S. Securities and Exchange Commission. Alerian MLP ETF Summary Prospectus The index AMLP tracks is calculated with no deduction for taxes, so during rising markets the deferred tax liability grows and the performance gap widens. During declines, the liability shrinks and can cushion the downside. This corporate-level drag is the price of admission for the simplified reporting.
AMLP in an IRA or 401(k)
Holding individual MLP units in an IRA can generate unrelated business taxable income. If total UBTI exceeds $1,000 in a year, the account itself owes tax on it — a bill inside what’s supposed to be a tax-sheltered account.11Internal Revenue Service. Publication 598, Tax on Unrelated Business Income of Exempt Organizations
AMLP sidesteps that problem. Because the fund is a C-corporation paying tax at the entity level, it does not pass UBTI through to shareholders. Your IRA receives a clean dividend with no UBTI filing obligation. That makes AMLP one of the more practical ways to get MLP exposure inside a retirement account. The corporate tax drag still exists, but inside a tax-deferred account it’s easier to stomach since you aren’t also paying individual income tax on the distributions each year.
Tax Consequences When You Sell
When you sell AMLP shares, your taxable gain equals the sale price minus your adjusted cost basis. If return-of-capital distributions have reduced that basis over time, the gain is larger than the raw price appreciation you experienced. Shares held longer than one year qualify for long-term capital gains rates; shares held a year or less are taxed as ordinary income.12Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Selling AMLP is simpler than selling direct MLP units. You report a straightforward capital gain or loss on Schedule D, with none of the partnership-level ordinary income recapture that direct MLP holders deal with on a K-1. The corporate structure absorbs that complexity, which is the whole point of owning MLPs through this wrapper.