NUA Stock Sale and 3.8% NIIT

[Stinson957C]

I have NUA (net unrealized appreciation) stock from my employer which was distributed last year (Sept, 2022). I paid ordinary income tax on the cost basis, which was reported in Box 2a of my 1099-R. I have already sold some shares in 2023, so the difference between the cost basis and the value at the time of distribution is subject to LT capital gains while the difference between the value at the time of distribution and the value at the time of sale is subject to ST capital gains. TurboTax does not appear to have provision to handle this. In another thread, it was suggested to report the sale as both a ST and a LT capital gain, along with a note of explanation. An additional problem that I have is that the sale of NUA stock is NOT subject to the 3.8% Net Investment Income Tax (NIIT) per IRS rules, yet TurboTax ignores this and calculates the 3.8% NIIT. Am I missing something or does TT not have provision for this tax situation? If the latter, I can no longer be a TT user. Thank you in advance for any help.

[Mike9241]

as to the NIIt tax

this is from the instructions for form 8960 where the NIIT tax is calculated.

Net gain attributable to NUA in employer securities held by a qualified plan. Any gain attributable to NUA (within the meaning of section 402(e)(4)) that you realize on a disposition of employer securities held by a qualified plan is a distribution within the meaning of section 1411(c)(5) and isn’t included in net investment income. However, any gain realized on a disposition of employer securities attributable to appreciation in

the value of your employer securities after the distribution from a qualified plan isn’t a distribution within the meaning of section 1411(c)(5) and is included in net investment income.

if its excludable the adjustment goes on line 5b of the 8960

Net Gain or Loss From Disposition of Property That Isn’t Subject to Net Investment Income Tax

Gain attributable to net unrealized appreciation (NUA) in employer securities held by a qualified plan.

Warming I could not see where the app ever asks about this type of adjustment to NIIT. however. I use a desktop version which has forms mode so i could go into the 8960 wks to enter the NUA adjustment.

online versions do not have forms mode.

[Stinson957C]

Hi Mike. Thank you very much for the clarification on the NIIT and especially for the workaround by manually going into forms mode. I really appreciate the help, although Intuit really needs to address this. 

[kheshgi4]

I will have a sale of NUA stock in 2024 which will have a NIIT exclusion as well as STCG.  For the NIIT exclusion, I hear that I would not be able to use the TT online version and need to use the TT desktop version by editing a form.  I also understand that I would need to then not file electronically if using form editing. Would this apply to both federal and state (NJ) or could i still file state electronically?

[taxdean]

Did you get a response as to how to handle the short-term and long term gains and losses from sales after doing an NUA?  Also, regarding the prior replies in this thread, is it still necessary to do a manual workaround so that the NUA gains are exempt from NIIT?  Thanks!