2025 CQP K-1 Guide: Basis Erodes 2-3x Faster Than Pipeline MLPs

CQP's early March timing puts it ahead of many midstream MLPs. If you hold multiple MLPs, CQP will likely arrive before Energy Transfer and MPLX but around the same time as EPD.

This is the single most common CQP investor mistake. Cheniere has two publicly traded securities, and they are taxed completely differently.

How to check which one you own: Open your brokerage statement or holdings page. The ticker symbol is definitive — CQP is the partnership, LNG is the C-corp. If you bought "Cheniere" without specifying, check the CUSIP number: CQP's CUSIP starts with 16411R, LNG's starts with 16411Q. Your year-end tax documents will confirm: a K-1 means CQP, a 1099-DIV means LNG.

What happens if you file the wrong form: If you own CQP but report it as a stock with only 1099-DIV data, you'll miss the K-1 basis adjustments entirely. Your reported basis will be too high, your reported gain too low, and the IRS automated matching system will flag the discrepancy. You'll also miss the §199A deduction and overstate any UBTI in tax-exempt accounts. Going the other direction — reporting LNG as if it issued a K-1 — creates phantom basis adjustments that don't exist. Either mismatch can trigger a CP2000 notice.

If you want Cheniere exposure without K-1 complexity, LNG (the C-corp) is the simpler option. CQP is specifically for investors who want the pass-through tax treatment and higher yield.

CQP is not a typical midstream MLP. While EPD, ET, MPLX, and PAA operate pipeline and gathering systems, CQP owns and operates LNG liquefaction and export terminals — a fundamentally different business.

Core assets:

• Sabine Pass LNG (Louisiana): Six operational liquefaction trains with ~30 mtpa (million tonnes per annum) nameplate capacity. One of the largest LNG export facilities in the world.
• Sabine Pass Pipeline: A 94-mile pipeline connecting the terminal to major interstate and intrastate pipelines for natural gas supply.

By the numbers (approximate): ~$59/unit price, $28B+ enterprise value, ~5.5% annualized yield. CQP is a parent entity of Sabine Pass Liquefaction, LLC. The relationship with Cheniere Energy, Inc. (LNG) — the C-corp parent — is covered in detail above.

Sabine Pass Expansion: CQP is pursuing a major capacity expansion at Sabine Pass — up to 20 mtpa additional, pending FERC/DOE approval. For unitholders, major capital projects increase depreciation allocations on K-1s, which means potentially faster basis erosion in future years as the new infrastructure enters service and begins depreciating.

CQP pays one of the highest dollar-amount distributions in the MLP space. This is great for income — and creates exceptionally fast basis erosion.

When basis reaches zero, further distributions become immediately taxable under §731 — see the basis-reaches-zero guide. CQP's enormous depreciable asset base drives significant §751 recapture exposure at sale.

CQP's distributions create steady basis erosion — and the broker gap widens every year. Here's a realistic 8-year trajectory at ~$230/year net erosion (100 units). Compare the final gap to a pipeline MLP like EPD eroding at ~$130/year over the same period.

After 8 years, the IRS-adjusted basis is ~$3,160 — a 37% decline from purchase. The broker still shows $5,000 — a $1,840 gap. For comparison, a pipeline MLP like EPD eroding at ~$130/year would show a $1,040 gap over the same period. CQP's gap grows 77% faster.

If you sell at $59/unit ($5,900 proceeds) at Year 8:

• Broker calculates: $5,900 - $5,000 = $900 gain
• IRS expects: $5,900 - $3,160 = $2,740 gain — with substantial §751 ordinary income
• Broker understates gain by: ~3x ($900 reported vs. $2,740 actual)

CQP's §751 recapture is particularly large because of the enormous depreciable LNG asset base. Expect §751 ordinary income to represent 40-60%+ of total gain for positions held 3+ years. By Year 8, the accumulated depreciation pass-through makes the recapture component even larger.

Enter your CQP K-1 data below. The calculator implements the full IRS Partner's Adjusted Basis Worksheet.

CQP issues a single K-1 with one EIN. The K-1 structure is straightforward, but the numbers are larger than typical midstream MLPs due to the scale of LNG operations.

CQP's operations are concentrated in two states — which simplifies the state filing picture.

• Louisiana: Sabine Pass LNG terminal — Louisiana has a low filing threshold for nonresidents. Most CQP unitholders will see Louisiana income on their K-1 state supplement.
• Texas: Corpus Christi LNG terminal (owned by Cheniere Energy, Inc., not CQP directly, but pipeline assets may allocate some TX income). Texas has no state income tax.

Because CQP's primary asset is in Louisiana (Sabine Pass), most unitholders face a single state filing question: whether their Louisiana allocation exceeds the filing threshold. For small positions, the answer is often no.

For a complete guide, see the MLP State Filing Requirements guide.

CQP carries higher UBTI risk than most midstream MLPs. LNG terminal economics can generate significant Box 1 ordinary business income — particularly in years with strong LNG demand and high utilization of the Sabine Pass trains. This income flows through as Unrelated Business Taxable Income (UBTI) in tax-exempt accounts like IRAs and Roth IRAs.

If UBTI exceeds $1,000 across all partnerships held at the same IRA trustee, the IRA must file Form 990-T and pay tax at trust rates (up to 37% at just $14,451 of income). The $1,000 threshold is aggregate — if you also hold EPD or ET in the same IRA, their Box 1 income adds to CQP's.

Illustrative UBTI threshold for CQP: A pipeline MLP like EPD might allocate $2-4/unit in Box 1 income — meaning you'd need 250-500 units ($7,000-$14,000 at $28/unit) before UBTI becomes a concern. CQP's higher Box 1 per unit (driven by LNG terminal operating income) means the threshold can be reached at ~$20,000-$30,000 in position size — roughly half the dollar amount needed for pipeline MLPs. In strong LNG demand years, even smaller CQP positions could generate UBTI above $1,000.

CQP is a global energy infrastructure play — fundamentally different from the domestic pipeline toll-road model. When I was on the institutional side, LNG infrastructure was valued on long-term contract quality and counterparty credit, not basin production volumes.

CQP's take-or-pay contracts with investment-grade counterparties (Shell, TotalEnergies, Korea Gas Corporation) create cash flow visibility that pipeline MLPs can't match. The downside is concentration: Sabine Pass is essentially a single-asset bet. Any extended outage, regulatory action, or structural change to the LNG market directly affects distributions.

The tax profile is distinctive. CQP's enormous depreciable asset base means: (1) high depreciation pass-through on K-1, (2) faster basis erosion than pipeline MLPs, and (3) very significant §751 recapture at sale.