SteelPath MLP Tax Time FAQ
Master Limited Mutual Fund, ETF with Mutual Fund with less
Partnership more than 25% MLPs than 25% MLPs
Tax structure Partnership Regular corporation Regulated investment
company
Federal tax reporting Schedule K-1 Form 1099 Form 1099
Taxation of Mostly return of capital Mix of return of capital Mix of ordinary income,
distributions and qualified dividend capital gains and return
income of capital
Generates UBTI? Yes No No
If you own an MLP mutual fund
After receiving distributions from the MLPs that it holds, and deducting expenses, the fund makes a
managed distribution amount to its clients. Tax characterization of a distribution is dependent on the
holding period of the investment and portfolio turnover, among other things and classified as either return
or capital or qualified dividends at the end of the fiscal year. Any distributions characterized as return of
capital are tax-deferred and will reduce your cost basis.
Assume you bought a fund for $1,000 and receive a $50 annual distribution payment, $40 of which is
considered return of capital. After one year, the cost basis of the fund would drop to $960, and you’d pay
normal dividend income tax rates on the remaining $10.
The fund will receive and process K-1s from the MLPs. The investor will receive a Form 1099 in February.
On 1099-DIV, return of capital distributions will appear as non-dividend distributions in Box 3; taxable
distributions will appear in Box 1a and qualified dividends will appear in Box 1b. Box 1b is the portion of
Box 1a that is considered qualified dividends.
What causes dividends to be classified as qualified dividend income?
To the extent a c-corp structured mutual fund has positive earnings & profits (E&P) for the fiscal year
ending 11/30/XX, then a percentage of the distributions that were paid out during the calendar year are
classified as qualified dividend income (QDI) and the remainder are classified as return of capital (ROC).
Key components that can drive positive earnings & profits for the c-corp structure include:
• Realized gains within the portfolio,
• M&A activity,
• Pass-through income from underlying holdings,
• Higher portfolio turnover, and/or
• Depreciation adjustments on real assets.
How to understand the breakdown between QDI and ROC
If E&P is a positive number, then that amount is divided by the total distributions paid by the fund, and the
result equals the percentage classified as qualified dividend income. For example, if the fund paid $100 in
total distributions throughout the year, and generated $40 in E&P, then 40% of those distributions would
be classified as qualified dividend income and the investor would owe taxes in the current year at long
term capital gains rates. The remainder would be classified as return of capital and would reduce the
investor’s cost basis. Importantly, taxes would then be owed when the fund is sold on the difference
between the sales proceeds and the adjusted cost basis. If the investor’s cost basis reached zero, then
each distribution would be taxed in the current year.
Not a Deposit Not FDIC Insured
Not Guaranteed by the Bank May
Lose Value Not Insured by any
Federal Government Agency
When does Invesco SteelPath know return of capital versus qualified dividend percentages?
Late January. If the funds produced return of capital during the year, a Form 8937 will be available on Invesco’s website
which shows the classification breakdown of the distributions. If the distributions are classified as 100% qualified
dividends, then no Form 8937 will be generated.
Historical Return of Capital (ROC) and Qualified Dividend Income (QDI)
Alpha Income Select 40 Alpha Plus
ROC QDI ROC QDI ROC QDI ROC QDI
2010 100% 0% 91% 9% 100% 0% - -
2011 100 0 100 0 100 0 - -
2012 100 0 90 10 100 0 100% 0%
2013 100 0 100 0 100 0 100 0
2014 92 8 100 0 100 0 100 0
2015 100 0 100 0 100 0 100 0
2016 100 0 100 0 100 0 100 0
2017 0 100 87 13 82 18 53 47
2018 95 5 100 0 72 28 100 0
2019 94 6 100 0 83 17 67 33
2020 100 0 100 0 100 0 100 0
2021 100 0 100 0 100 0 88 12
2022 0 100 68 32 60 40 0 100
2023 0 100 0 100 0 100 0 100
2024 0 100 0 100 0 100 0 100
Qualified dividend income is taxed at long term capital gains tax rates.
Where can I find the cost basis of my investment? Is it listed anywhere?
In late January, Invesco sends return of capital information, if applicable, for dividends paid in the
previous year to all our partner firms. Typically, firms then adjust the client’s cost basis on the
January or February statement to reflect the return of capital for the previous calendar year.
Invesco does not offer tax advice. Please consult your tax adviser for information regarding your own personal tax situation.
A change in current tax law, or a change in the underlying business mix of a given MLP, could result in an MLP being treated as a corporation for U.S. federal income tax purposes. This would
result in such MLP being required to pay US federal income tax on its taxable income and could result in a reduction of the value of the MLP. Most MLPs operate in the energy sector and are
subject to the risks generally applicable to companies in that sector, including commodity pricing risk, supply and demand risk, depletion risk and exploration risk. MLPs are also subject to the
risk that regulatory or legislative changes could eliminate the tax benefits enjoyed by MLPs which could have a negative impact on the after-tax income available for distribution by the MLPs
and/or the value of the portfolio’s investments. Although the characteristics of MLPs closely resemble a traditional limited partnership, a major difference is that MLPs may trade on a public
exchange or in the over-the-counter market. Although this provides a certain amount of liquidity, MLP interests may be less liquid and subject to more abrupt or erratic price movements than
conventional publicly traded securities. The risks of investing in an MLP are similar to those of investing in a partnership and include more flexible governance structures, which could result in
less protection for investors than investments in a corporation. MLPs are generally considered interest-rate sensitive investments. During periods of interest rate volatility, these investments may
not provide attractive returns.
Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges
and expenses. For this and more complete information about the fund(s), visit invesco.com for a current prospectus.
Invesco.com O-SPTAX-FLY-1 01/25 Invesco Distributors, Inc.
20250116-4162373-NA
