Unitholder
What Is a Unitholder?
A unitholder is an investor who claims at least one units in an investment trust or master limited partnership (MLP). A unit is equivalent to a share, or piece of interest. Unitholders are managed the cost of specific rights that are illustrated in the trust declaration, which oversees the trust's actions.
The most common type of unit trust is an investment vehicle that pools funds from investors to purchase a portfolio of assets. These unit trusts invest in numerous asset classes of stocks (enormous cap, small-cap, domestic, international, and so forth), bonds (investment grade, high-yield, emerging market, tax-free, and so on), real estate, and different securities.
Figuring out Unitholders
There is a whole range of risk/reward decisions for investors in these unit trusts. The unitholder gains exposure to a pool of securities and is free to trade units whenever, however a unit trust will in general be less liquid than, say, a exchange-traded fund (ETF), and the price of the traded unit may not be equivalent to net asset value (NAV) of the unit trust per share.
Unitholders may likewise have an interest in a master limited partnership (MLP), an investment vehicle that offers huge tax benefits to both general and limited partners. Most MLPs are in the energy sector. For instance, pipeline companies favor the MLP structure to offer special tax treatment of cash flows to partners and unitholders. What basically attracts unitholders is the potential for high-income yields of MLPs.
One difference among unitholders and shareholders is that while unitholders might make them vote rights, those rights are frequently a considerable amount more limited than those of corporate shareholders.
Unitholder Taxation
For unit trusts, unitholders pay income taxes on interest, dividends, and capital gains distributed to them on the off chance that the units are held in a taxable account. The unit trusts send all unitholders IRS Form 1099, commonly 1099-INT or 1099-DIV.
On account of master limited partnerships (MLPs), each unitholder's extent of income, gains, deductions, losses, and credits is reported on a Schedule K-1. In the event that the net amount is positive the unitholder pays tax on a pass-through basis whether a cash distribution was actually received; in the event that there is a net loss, the amount can be carried forward and utilized against future income, however just from a similar MLP.
The Tax Cuts and Jobs Act, passed in 2017, introduced another tax deduction for [pass-through](/course through) businesses, including unit investment trusts. The qualified business income deduction, or 199A deduction, permits non-corporate taxpayers to deduct up to 20% of the qualified business income from each pass-through business they own.
Illustration of a Unitholder
Suppose an investor is interested in being a unitholder in a real estate investment trust (REIT). The investor takes care of business and chooses to purchase shares in Prologis, Inc. (PLD), the biggest real estate company in the world since they like the assets in the portfolio and its true capacity for growth in the current market environment. All income that the unitholder receives will be taxed as pass-through income.
Highlights
- Unitholders may likewise have an interest in a master limited partnership (MLP), a tax-advantaged investment vehicle.
- Income that unitholders receive is taxed as pass-through income.
- A unitholder is an investor who possesses units in an investment trust or master limited partnership (MLP).
- The most common type of unit trust is an investment vehicle that pools funds from investors to purchase a portfolio of assets.
