Here is what I believe to be true and using very round numbers: Decades after my retirement from a company, actually just a little more than one year ago, I transferred shares of company stock held in my 401k with that company to a taxable account at a brokerage. I am now looking to sell some of that stock this year, enough to fill up a capital gains bracket (after waiting long enough to have a handle on my expected 2025 MAGIs and such). There has been no dividend reinvestment nor purchases or sales of the company stock since that date of a little more than one year ago. Using very round numbers, the cost basis was and is 100,000. The value was 600,000 when the stock was moved to a taxable account (and the rest of the 401k was rolled over to an IRA, but I digress), meaning that the 500,000 NUA would be the LTCG if I had immediately sold all the stock and it was still worth 600,000. Today the stock is worth 700,000 and so I would have another 100,000 of potential LTCG if I sold all the stock shares. I am considering selling half of the shares, which I believe would result in 700,000/2 = $350,000 of proceeds and which would have a cost basis of 100,000/2 = 50,000, both arrived at using simple proration. I believe I will have a LTCG of 350,000 – 50,000 =300,000. I believe that the portion of that LTCG (based on the NUA amount) that is exempt from NII tax is 500,000/2 = 250,000 and the remaining portion of that LTCG that is subject to NII tax is 100,000/2 = 50,000 Questions: Is my assumption that 50,000 is subject to the NIIT correct? I am aware that gain from the sales of the NUA amount are LTCG regardless of the holding period and not subject to the NIIT, is that correct? I understand that the exemption for the NIIT is claimed as follows. is it correct?: - Open Form 8960 WORKSHEET and go to the Section For Line 5b.
- On the bottom line titled "Net gain or loss from disposition of property not subject to net investment tax", manually enter the 250,000 value of the NUA which is half of the amount shown (in the year of the transfer) in Box 6 of my 1099-R.
- This becomes a negative number on Form 8960, Line 5b.
- The resulting NIIT calculation on Form 8960, Line 17 is then correct and carries over to Form 1040SR, Line 23.
- Entering the value anywhere else results in an error message during the review.
- (ignore the 6) Assuming everything above seems correct: I do not have my 2025 tax forms from the brokerage yet, obviously, and have never ever sold stock so I don't know what the forms will look like but let me ask: Are there any surprises I need to watch out for wherein the above procedure will alert the IRS to there seeming to be an error/fraud compared to those numbers on the tax form?
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