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Abstract: 

Master limited partnerships (MLPs) have experienced measurable success over the past decade and a half. They appeal to investors seeking high yield, high growth, and tax deferral. However, the virtual certainty of rising interest rates casts doubt on the sustainability of MLPs’ appeal compared to other investments. An increase in rates could elevate MLPs’ operational costs and reduce their attractiveness relative to other yield-based investments. The effect of rising interest rates on MLP performance is largely untested and unknown. But any potential negative effect of a rate increase on performance must be tempered by a thorough understanding of the tax benefits that will continue to be paramount in measuring the true worth of an MLP compared to other investments. This article details and quantifies these tax benefits.

Keywords: master limited partnership, interest rates, tax benefits, depreciation deduction, depletion deduction, tax shield, partnership taxation

Affiliations:  1: San Francisco State University; 2: Ithaca College.