Energy Transfer (ticker: ET) is a master limited partnership, so instead of a Form 1099-DIV you receive a Schedule K-1 (Form 1065) each year reporting your share of partnership income, deductions, and credits.1Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income To report your Energy Transfer K-1 on your taxes, you transfer each numbered box to the form it belongs on: Box 1 ordinary business income goes to Schedule E, portfolio items in Boxes 5 through 11 go to the 1040 and Schedule D, Section 199A information supports a deduction on Form 8995, AMT items in Box 17 feed Form 6251, and the state schedule in the back of the package drives any non-resident state returns you owe. Alongside the return itself, you keep a running record of your tax basis, because the partnership does not track it for you and you’ll need it the year you sell.
When the K-1 Arrives and What to Do If It’s Late
Energy Transfer’s K-1 packages usually post online in mid-March, with paper copies mailing shortly after.2Energy Transfer. K-1 and K-3 Tax Package Information That’s weeks after the 1099s from your brokerage and often too close to April 15 for a comfortable return. Download the K-1 from Energy Transfer’s investor relations page rather than waiting for the mail — the online version is identical and arrives first.
If the package still isn’t in hand by early April, file Form 4868 for an automatic six-month extension to October 15.3Internal Revenue Service. Topic No. 304, Extensions of Time to File Your Tax Return The extension covers filing, not payment. Estimate what you owe and pay it by April 15 to avoid interest.
Box 1: Ordinary Business Income on Schedule E
Box 1 shows your share of Energy Transfer’s ordinary business income or loss.4Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065) (2025) This amount goes on Schedule E (Form 1040), Part II, line 28.5Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040) – Section: Part II
For nearly all unitholders this income is passive, because you aren’t involved in day-to-day operations. Energy Transfer is also a publicly traded partnership, and the tax code treats PTPs differently from private passive investments. Each PTP is netted on its own, separate from your other passive activities, and separate from other PTPs.6Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited If Energy Transfer shows a net loss, you cannot use it against rental income or income from another partnership. Report zero on Schedule E and track the suspended loss on your own carryforward schedule. The loss is released when Energy Transfer produces offsetting net income in a later year or when you sell your entire position in a fully taxable transaction.7Internal Revenue Service. Topic No. 425, Passive Activities – Losses and Credits
Energy Transfer net income works the other direction. It can absorb suspended passive losses from your non-PTP activities, such as a rental property.
Portfolio Income
Interest, dividends, royalties, and capital gains the partnership earns on its own investments show up in Boxes 5 through 9b and Box 11. Portfolio income is not passive and sidesteps the passive-loss rules.8Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065) (2025) – Section: Portfolio Income Interest goes on line 2b of Form 1040, ordinary dividends on line 3b, and net capital gains or losses on Schedule D. The amounts are usually small compared to Box 1, but each has to land on the right line.
The 20% Section 199A Deduction
Section 199A gives you a deduction of up to 20% on qualified income from a publicly traded partnership.9Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income The deduction had been set to expire after 2025, but the One Big Beautiful Bill Act, signed July 4, 2025, made it permanent. It remains available for 2026 and beyond.
PTP income runs through a separate track inside Section 199A that bypasses the wage and capital limits applied to regular qualified business income. The qualified PTP income figure appears in your K-1 package, typically Box 20 with Code A or on a supplemental schedule. You claim the deduction on Form 8995 or Form 8995-A depending on your taxable income. If Energy Transfer allocates $1,000 of qualified PTP income to you, the deduction reduces your taxable income by $200.
AMT Items and Foreign Taxes
Box 17 reports items that feed the alternative minimum tax. Energy Transfer commonly passes through depreciation adjustments (Code A), adjusted gain or loss (Code B), depletion (Code C), and oil, gas, and geothermal gross income and deductions (Codes D and E).10Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065) (2025) Each code maps to a specific line on Form 6251. Tax software handles the mapping; the K-1 instructions spell it out if you’re preparing by hand.
Foreign taxes paid by the partnership appear on Schedule K-3, which accompanies the K-1. Claim them on Form 1116, filing a separate form for each category of foreign-source income.11Internal Revenue Service. Instructions for Form 1116 Most limited partners classify their share as passive category income. The credit runs dollar-for-dollar against your U.S. tax, so even a small amount is worth claiming.
Tracking Your Adjusted Tax Basis
Basis in your Energy Transfer units is your job to maintain. The partnership does not track it.12Internal Revenue Service. Publication 541, Partnerships – Section: Basis of Partner’s Interest Start with what you paid. Each year, basis increases by your share of partnership income and gains (including tax-exempt income) and by increases in your share of partnership liabilities. It decreases by your share of losses and deductions, by cash distributions, and by decreases in your share of liabilities.
The capital account analysis printed on the K-1 is not your tax basis. That book figure excludes your share of partnership liabilities, which for a leveraged MLP is a significant piece. Reconcile the two numbers each year using the basis worksheet in the K-1 instructions.
Energy Transfer’s quarterly cash distributions are generally treated as a non-taxable return of capital rather than as dividends. Each distribution reduces your basis. Once cumulative reductions push basis to zero, further distributions are taxed as long-term capital gains. Long-time holders sometimes find their basis has been ground down near zero, so distributions they thought were tax-free have quietly started generating gain.
The 3.8% Net Investment Income Tax
If your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), a 3.8% surtax applies to the lesser of your net investment income or the amount by which income exceeds the threshold.13Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax Your Energy Transfer income counts as net investment income because it’s passive, and so do capital gains when you sell. Report the NIIT on Form 8960. The thresholds are not indexed for inflation.
Self-Employment Tax Does Not Apply
One real benefit of MLP ownership: as a limited partner, your Box 1 income is excluded from self-employment tax. The code carves out a limited partner’s distributive share, other than guaranteed payments for services.14Office of the Law Revision Counsel. 26 USC 1402 – Definitions Publicly traded MLP unitholders don’t receive guaranteed payments, so the whole Box 1 amount avoids the 15.3% combined Social Security and Medicare tax.
State Non-Resident Returns
Energy Transfer operates in many states, which creates tax nexus in each one. You get allocated a share of income earned in every state where the partnership does business, and most of those states require a non-resident return. Of the states with an income tax, 22 impose no meaningful income threshold — any income earned triggers a filing requirement. Among those that set dollar thresholds, amounts range from as low as $100 to over $15,000.
Your K-1 package includes a state-by-state schedule showing allocated income, loss, and any tax Energy Transfer withheld on your behalf. Claim the withholding as a credit on the non-resident return. In many cases it fully covers the liability, so you may get a small refund — but you still have to file.
The administrative burden is the real cost. Some states allow partnerships to file a composite return on behalf of non-resident partners, which satisfies your individual filing obligation. Check the supplemental materials in your K-1 package to see whether Energy Transfer has filed a composite return in any state where you owe tax; if so, you may not need a separate return there. Ignoring these filings can trigger state notices, penalties, and interest even when the underlying tax is small.
Reporting a Sale of Units
Selling MLP units creates two separate tax pieces: a capital gain or loss and a mandatory ordinary income recapture under Section 751.15Office of the Law Revision Counsel. 26 USC 751 – Unrealized Receivables and Inventory Items
The Capital Piece
Capital gain or loss equals net sales proceeds minus your final adjusted basis. Report it on Form 8949 and summarize on Schedule D.16Internal Revenue Service. Instructions for Form 8949 (2025) Units held more than a year qualify for long-term rates.
Section 751 Ordinary Income
Section 751 recharacterizes part of your gain as ordinary income, taxed at your marginal rate. The recapture reflects cumulative depreciation and other deductions the partnership passed through to you. The amount appears on the final K-1, usually in Box 20 with a designated code or on a supplemental statement, and goes on Form 4797.17Internal Revenue Service. Instructions for Form 4797 (2025) The ordinary piece and the capital piece sit on different forms and don’t simply net. In some cases, the Section 751 ordinary income can exceed your total economic gain, leaving you with ordinary income on Form 4797 and a capital loss on Schedule D.
Suspended Losses Are Released
A complete sale of your entire Energy Transfer position to an unrelated buyer releases every previously suspended PTP passive loss in that year.7Internal Revenue Service. Topic No. 425, Passive Activities – Losses and Credits Released losses offset the gain and any other income on your return, and they can meaningfully reduce the sting of Section 751 recapture. Partial sales do not trigger the release.
If You Hold Units in an IRA
Holding an MLP inside a traditional or Roth IRA does not shield you the way it does for ordinary stocks. Partnership operating income is unrelated business taxable income when earned inside a tax-exempt account. If gross UBTI from all sources inside a single IRA exceeds $1,000 in a year, the custodian must file Form 990-T and pay the tax out of the IRA’s assets.18Internal Revenue Service. Instructions for Form 990-T (2025) The tax is calculated at trust rates, which reach the top 37% bracket at a much lower income level than individual rates. Some custodians also charge a fee for handling the filing. Smaller positions usually stay below the $1,000 threshold; larger ones or unusually strong partnership years can cross it.
If You Inherit Units
An heir receives a stepped-up basis equal to the fair market value of the units on the date of death.19Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent The step-up wipes out the cumulative basis reductions from years of distributions and depreciation. The executor must notify the partnership of the death and provide the estate’s taxpayer identification number so future K-1s are issued to the right entity.4Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065) (2025) The decedent’s final return picks up partnership income through the date of death, and the estate or new owner picks up the remainder for that year. Suspended passive losses accumulated by the decedent generally do not transfer; they can offset only to the extent they exceed the basis step-up.