I'll give this a try:
It is my understanding that, when you sell any of that company stock, you pay capital gains on the profit over the cost.
I agree
The profit that is over the equal to that amount that you had when you did the NUA (in your case in 2007) is subject to LTCG
I think you are saying over the amount is subject to LTCG. If so, Yes, assuming there is a gain. There could be a loss.
but exempt from NII
Yes, but... I think that makes things too complicated. My approach has been to sell shares until the value left equals the Gross Distribution Amount on the 1099-R. If my MAGI income triggers the NIIT for that tax year, that is the price one has to pay.
and the profit above that is ALSO subject to capital gains (possibly STCG if there is reinvested dividends less than a year old, otherwise LTCG) and IS subject to NII.
I agree.
In other words, if you sell at a higher price than what it was priced at when you moved the shares to a taxable account, I think you must pay some NII on it (assuming your MAGI triggers NII, of course).
I agree. If my MAGI income triggers the NIIT for that tax year, that is the price one has to pay.
I do not believe you can avoid NII completely if the price has appreciated since when the NUA occurred.
I agree.
The way I read what you are saying leads me to think that you think you can avoid the NII perhaps until some year when your MAGI would drop enough so as to moot the NII
I agree. That's been my approach. I.e. selling shares not subject to the NUA until the value of the remaining shares is equal to the Gross Distribution on the 1099-R. At that point one can decide when to sell and report the sale as an NUA.
Separately:
In your case, you mentioned pro-rating sales and pro-rating the NUA. I forgot to mention that you also would have to pro-rate the NUA on the Worksheet for Form 8960.
Also, assuming you know about the IRRMA tax brackets if you are on Medicare. I.e. the added premium for Parts B and Parts D at different income levels. Passing from one income level to the next can trigger a nasty surprise since the brackets are not progressive.
Another recommendation:
If you have a IRA and you are not yet 73 and on Medicare, distribute the IRA funds prior to having to 73 which triggers RMD's. RMD's raise havoc with tax planning.
