Energy Transfer (ticker: ET) is a master limited partnership, so instead of a 1099-DIV you receive a Schedule K-1 (Form 1065) each year, and reporting your Energy Transfer K-1 on your taxes means transferring each numbered box to a specific line or form: Box 1 ordinary business income goes on Schedule E, portfolio items land on Schedule B and Schedule D, Box 17 items feed Form 6251, any foreign taxes on Schedule K-3 go to Form 1116, and the qualified PTP income figure supports a Section 199A deduction on Form 8995.1Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income Alongside the return itself, you have to track your adjusted tax basis year over year because the partnership doesn’t do it for you and the number determines your gain when you eventually sell.
When the K-1 Arrives
Energy Transfer’s K-1 packages typically become available online in mid-March, with paper copies mailing shortly after.2Energy Transfer. K-1 and K-3 Tax Package Information That’s weeks after brokerages send 1099s, and it can land uncomfortably close to April 15. Download it directly from Energy Transfer’s investor relations page rather than waiting for the mail; the online version is identical and arrives first.
If you haven’t received your K-1 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.
Where Each K-1 Box Goes on Your Return
Box 1: Ordinary Business Income
Your share of Energy Transfer’s operating income or loss in Box 1 goes on Schedule E (Form 1040), Part II, line 28.4Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040) – Section: Part II For nearly all unitholders this income is passive, but Energy Transfer is a publicly traded partnership, and the tax code treats PTPs under a separate netting rule: income and loss from each PTP must be netted on its own, not combined with your other passive activities on Form 8582.5Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
The practical consequence: a net loss from Energy Transfer cannot offset passive income from a rental or another partnership. Report zero on Schedule E and add the loss to your running carryforward. The loss releases when Energy Transfer produces enough net income to absorb it in a later year, or when you sell your entire position.6Internal Revenue Service. Topic No. 425, Passive Activities – Losses and Credits Net income from Energy Transfer, on the other hand, can absorb suspended passive losses from your non-PTP activities.
Portfolio Items in Boxes 5 Through 11
Interest, dividends, royalties, and capital gains the partnership earned as investment income appear in Boxes 5 through 9b and Box 11. These are not passive and not subject to the PTP netting rule.7Internal 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 with Box 1, but each needs to land on the right line.
Claiming the 20% Section 199A Deduction
Section 199A allows a deduction of up to 20% on qualified PTP income.8Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income The One Big Beautiful Bill Act, signed on July 4, 2025, made this deduction permanent, so it applies for 2026 and beyond.
PTP income runs on a separate track within Section 199A that bypasses the wage and capital limitations that apply to regular qualified business income. Your K-1 package reports the qualified PTP income figure, typically in Box 20 with Code A or on a supplemental schedule. Claim the deduction on Form 8995, or Form 8995-A at higher income levels. If Energy Transfer allocates you $1,000 of qualified PTP income, you may deduct $200 against your taxable income.
AMT Adjustments and Foreign Taxes
Box 17 reports items that flow to alternative minimum tax. Energy Transfer commonly passes through depreciation adjustments (Code A), adjusted gain or loss (Code B), and depletion (Code C), plus separate gross income and deductions from oil, gas, and geothermal properties (Codes D and E).9Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065) (2025) Each code maps to a specific line on Form 6251; the K-1 instructions spell out the correspondences if you’re not using tax software.
Foreign taxes the partnership paid appear on Schedule K-3, which accompanies the K-1. Report them on Form 1116 to claim a credit against your U.S. tax, filing a separate Form 1116 for each category of foreign-source income.10Internal Revenue Service. Instructions for Form 1116 Most limited partners classify their share as passive category income. The credit is dollar-for-dollar, worth claiming even when small.
Tracking Your Adjusted Tax Basis
Your tax basis in Energy Transfer units is your responsibility. The partnership does not maintain it for you.11Internal Revenue Service. Publication 541, Partnerships – Section: Basis of Partner’s Interest Basis changes every year, and if you don’t track it, you’ll miscalculate the gain or loss when you sell.
Start with what you paid. Each year, basis goes up by your share of partnership income and gains (including tax-exempt income) and by increases in your share of partnership liabilities. It goes down by your share of losses, deductions, cash distributions received, and decreases in your share of liabilities.
The capital account analysis on your K-1 is not the same as your tax basis. That book-value figure ignores your share of partnership liabilities, which for a heavily leveraged MLP is a significant component of basis. Use the basis worksheet in the K-1 instructions to reconcile the two numbers each year.
Energy Transfer’s quarterly cash distributions are generally a non-taxable return of capital, not dividends, and each one reduces your basis. Once cumulative distributions push your basis to zero, further distributions are taxed as long-term capital gains. Long-time holders sometimes find their basis has ground down near zero and that “tax-free” distributions have started generating taxable 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 your income exceeds the threshold.12Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax Your Energy Transfer income counts as net investment income, and so do capital gains when you sell units. Report the NIIT on Form 8960; it’s added to your regular tax on Form 1040. These thresholds are not adjusted for inflation.
What Self-Employment Tax Doesn’t Apply
Your share of Energy Transfer’s income is excluded from self-employment tax. Section 1402 carves out a limited partner’s distributive share of partnership income, other than guaranteed payments for services.13Office of the Law Revision Counsel. 26 USC 1402 – Definitions Publicly traded MLP unitholders don’t receive guaranteed payments, so the entire Box 1 amount escapes the 15.3% Social Security and Medicare tax that self-employed individuals pay. Don’t let tax software route it onto Schedule SE.
Non-Resident State Returns
Energy Transfer operates in many states, and you’re allocated a share of the partnership’s income in each one. Most of those states require a non-resident return from you. Among states with an income tax, 22 have no meaningful filing threshold, so any allocated income triggers a return. States with dollar thresholds set them anywhere from about $100 to over $15,000.
Your K-1 package includes a state-by-state schedule showing your allocated income and any state tax the partnership withheld. Claim the withholding as a credit on the corresponding non-resident return. Withholding often covers or exceeds the actual liability, so you may get a small refund, but you still need to file.
Some states let partnerships file composite returns covering their non-resident partners, which can satisfy your individual filing obligation. Check the supplemental materials in your K-1 package to see whether Energy Transfer has filed a composite return in a state where you’d otherwise owe. Ignoring these filings can trigger state notices and penalties even when the underlying tax is small.
When You Sell Your Units
A sale creates two separate tax components: a capital gain or loss and mandatory ordinary income recapture under Section 751.14Office of the Law Revision Counsel. 26 USC 751 – Unrealized Receivables and Inventory Items They are reported on different forms and do not simply net.
The capital gain or loss is net sales proceeds minus your final adjusted tax basis, reported on Form 8949 and summarized on Schedule D.15Internal Revenue Service. Instructions for Form 8949 (2025) Held more than a year, this portion qualifies for long-term rates.
Section 751 recharacterizes part of the gain as ordinary income at your marginal rate, reflecting cumulative depreciation and similar deductions the partnership passed through over the years. The partnership provides the Section 751 amount on the final K-1, typically in Box 20 with a designated code or on a supplemental statement. Report it as ordinary income on Form 4797.16Internal Revenue Service. Instructions for Form 4797 (2025)
The uncomfortable part: Section 751 ordinary income can exceed your total economic gain. If your overall gain is $10,000 and Section 751 recapture is $12,000, you report $12,000 of ordinary income and a $2,000 capital loss. The ordinary income is taxed at your full marginal rate; the capital loss is subject to the standard $3,000 annual cap against ordinary income, with the rest carried forward.
A complete disposition to an unrelated buyer also releases all previously suspended PTP passive losses in the year of sale, deductible against any type of income.6Internal Revenue Service. Topic No. 425, Passive Activities – Losses and Credits Accumulated suspended losses can meaningfully offset Section 751 recapture. Selling only part of your position does not release them.
A Warning About IRAs
Holding Energy Transfer units inside an IRA does not eliminate tax the way it does for stocks and bonds. Operating income from a partnership is unrelated business taxable income inside a tax-exempt account. If gross UBTI from all sources within 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.17Internal Revenue Service. Instructions for Form 990-T (2025) The tax uses trust rates, which reach the top 37% bracket at low income levels. Smaller positions often stay under $1,000, but larger ones or high-income years can breach it. For many investors, a taxable brokerage account is more tax-efficient for MLP holdings than a retirement account.