NUA Stock Sale and 3.8% NIIT

[Romper]

I edited the original to avoid having the wrong info out there.

If you search for the following it finds the current version.

NUA Overriding The 3.8% Net Investment Income Tax

[Romper]

I'd like to think I've finally gotten it correct..
See the Revision 12/23/25.

I've edited it as shown in the bold type.

Search for:

NUA Overriding The 3.8% Net Investment Income Tax

I'd sure like a tax pro to respond for verification.

[taxdean]

I would also like to hear the opinion of a tax pro!

[taxdean]

I'm now getting an error message when I search for that and, apparently, failed to bookmark it when I was last reading it - sorry.  Is there a reason that you cannot post the URL?

[Romper]

On my screen there is a Search Box at the top.

I just paste the subject into it and it pops up almost immediately.

Here's the URL

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/nua-overriding-the-3-...

[taxdean]

In Step 3, it seems that one could infer it is the total cost basis from 2007 whereas I assume it would be a pro rata cost basis dependent on what fraction of the shares you are selling now. presumably fewer shares if the price of the stock has increased since 2007.  Or am I confused?

[Romper]

I think you are correct. You would sell fewer shares if the price was up and pro-rate the NUA and the cost basis entries in TurboTax. A lot of complexity to keep track of but...

I also sold shares w/o regard to the NUA until the balance got down to where the only shares left triggered the NUA.

In my case, I wanted to be done with it and the price of the shares were up so I sold the amount equal to the Gross Distribution.

[taxdean]

I am not a tax accountant so forgive me if this is off base.  It is my understanding that, when you sell any of that company stock, you pay capital gains on the profit over the cost.  The profit that is equal to that amount that you had when you did the NUA (in your case in 2007) is subject to LTCG but exempt from NII 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.  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 do not believe you can avoid NII completely if the price has appreciated since when the NUA occurred.  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 hope I am wrong.

[Romper]

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.

[taxdean]

Unfortunately, I am in RMD and IRMAA territory but am doing my best to account for that.  Most of what you say makes sense to me except the following:

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. 

... which I find totally confusing.  You indicate you agree with me but, at the same time, this answer seems to suggest if you sell only a certain subset of the shares, that you can, at least for the current tax year, avoid NII tax.  What do you mean by "selling shares not subject to the NUA".  For simplicity, assume there have been no share purchases or sales since the movement date to the taxable account and no dividend reinvestment and that your MAGI is high enough that you are already subject to NII tax.   The only variable when you sell some or all of those shares is the value of the shares when you sell versus the value of the shares on the movement date.  Actually, it may be simpler to just talk about the share price (assuming no splits/etc).  Do you agree that, if the share price is higher now when you are considering selling some or all of those shares than it was on the movement date, that you will owe some NII tax and that whatever you are referring to in the bold-fonted answer is irrelevant?

Thanks for all your help!

[Romper]

Let's give this a try..

seems to suggest if you sell only a certain subset of the shares, that you can, at least for the current tax year, avoid NII tax.

If the shares sold are reported as NUA shares there is no NIIT. If the sale is not reported as an NUA and your estimated MAGI for the current year will be under 200k you will not trigger the NIIT and you could sell some shares. If over 200k, you may not want to sell any shares.

What do you mean by "selling shares not subject to the NUA".

My definition of shares not subject to the NUA are those from dividend reinvestments and additional purchases after the transfer to the brokerage account. Those additional shares would not be subject to the NUA if sold. They would be reported as LT or ST cap gains or losses depending on the holding period. The sale will trigger the NIIT if one's MAGI is over 200k.

Your example of no dividend reinvestment and no share purchases or sales since the transfer date to the brokerage account would tell me that the sale of any of those shares would require reporting the sale as an NUA sale. 

Since NUA sales are not subject to NIIT, you would not encounter the NIIT on the sale of those shares. You would deduct the gain from the NIIT on the Worksheet for Form 8960 as we have discussed. You may still encounter the NIIT due to other income.

Do you agree that, if the share price is higher now when you are considering selling some or all of those shares than it was on the movement date, that you will owe some NII tax.

Your NUA is limited to the amount shown in Box 6 of the 1099-R. If the price rises you would be subject to LT or ST cap gains above the value in Box 6. If your MAGI is over $200k you would owe NIIT on the sale of those shares.

Separately - As you likely know, NUA's do not receive a step-up in the cost basis upon death of the owner.

Disclaimer - As we are not accountants or tax experts, our responses require verification from a qualified professional.

[taxdean]

OK, I think we are on the same page now and you are just making different assumptions than I was.  I am going to try to go back to a simpler example that I think I posited some time ago here.  ASSUME the following is true:

1 Due to RMDs and other taxable investment income, and other self-employment income, I will owe some NII tax even if I sell none of this company stock.  2. It is over one year from when the movement to a taxable account was made and there has been no dividend reinvestment nor purchases or sales of the company stock so any sale of company stock I make is from that original pool.  3. Suppose the cost basis was 100 (and all shares were assigned the same cost basis per share), the value was 600 when moved to a taxable account, meaning 500 NUA would be the LTCG if I sold all the stock and it was still worth $600.  However,. now the stock is worth 700 and so I will have another 100 of potential LTCG.  Now, let's assume I decide to sell half of the shares, which would result in 700/2 = $350 of proceeds which would have a cost basis of 100/2 = 50.  So, I believe I will have a LTCG of 350 - 50 =300.  I believe that the portion of that LTCG that is exempt from NII tax is 500/2 = 250 and the remaining portion of that LTCG that is subject to NII tax is 100/2 = 50.   Do you agree that this is how the pro ration must be done and I must pay the NII tax on the $50?

If not, please state why not.  If so, please tell me what you think the entries need to be in Turbo-tax. Thanks much, Romper.

[Romper]

It is over one year from when the movement to a taxable account was made and there has been no dividend reinvestment nor purchases or sales of the company stock so any sale of company stock I make is from that original pool. 

Distributions from an NUA are all LTCG regardless of the holding period. Shares not subject to an NUA are LT or ST cap gains or losses depending on the holding period.

I believe I will have a LTCG of 350 - 50 =300.  I believe that the portion of that LTCG that is exempt from NII tax is 500/2 = 250 and the remaining portion of that LTCG that is subject to NII tax is 100/2 = 50

From my research, I believe you are correct. Everything gets pro-rated including the original NUA for half of the sale. I suggest a tax professional provide the answer.

[taxdean]

Glad to hear but where will we find that tax professional to confirm?  In the meanwhile, Romper, for my example, can you clarify which numbers you would enter where in TurboTax, please including whether you would need to check any boxes that indicate you are not using the information on forms from the broker which some might consider an audit risk?  Thanks much!

[Romper]

December 26, 2025

As I am far from a tax professional, I would not be a reliable source for that level of detail.

In response to your question as to where to find a tax professional?

This time of the year the tax accountants and CPA’s come out of the woodwork.

The challenge will be – Is the person familiar with Net Unrealized Appreciation? I suspect it could be a challenge as I don’t believe many have encountered it in detail.

My recommendation if you don’t find an experienced source:

I had a need to file an Estate Tax form 706 two years ago. I found that H. & R. Block was the most logical source since they have a national back-office staff of professionals. I prefer an organization of professionals rather than a small shop for complex subjects. They also have customized software for various subjects.

Ask for a Master Tax Advisor or a Registered IRS Agent at your local office. They will want to do your tax returns at a price of course.

The key points to keep in mind when interviewing a source:

1. NUA’s are not subject to NIIT
2. To avoid the NIIT, the NUA must be deducted on Form 8960, Line 5b (Entered from Form 8960 Worksheet if using TurboTax)
3. All distributions from an NUA are LTCG.
4. The cost basis on the Form 1099-B could be missing or incorrect and would need to be adjusted in TurboTax or whatever software is used.
5. Selling half of the shares adds complexity.