Master limited partnerships have gotten extremely popular among investors. But what exactly are MLPs, and why are they getting so much attention from the investing community?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, runs through the basics of MLPs. Dan notes that the big draw comes from tax benefits of the MLP structure, which avoids entity-level taxation and involves passing through income distributions to investors. Big yields are available from MLPs and other similar entities, with Kinder Morgan Energy Partners (NYSE:KMP) yielding more than 7%, Enterprise Products Partners (NYSE:EPD) paying more than 4%, and LLC Linn Energy (NASDAQ:LINE) weighing in at 10%. Dan points out that some of those distributions have raised concerns about sustainability, and there are also worries that lawmakers could rein in or eliminate the MLP structure. For now, though, the tax advantages of energy-related income from MLPs loom large in investors' thinking about the entities.

Take advantage of this little-known MLP tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule involving master limited partnerships. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Compare Brokers