NUA Stock Sale and 3.8% NIIT

[taxdean]

Regarding the tax professional, I was merely referring to one who could agree with us (or not), but it is not clear any of them are looking into this thread which may have gotten too back-and-forth for anyone to dare bothering with.  I wonder if it makes sense to start a new cleaner thread that starts with the conclusions we agree upon with my example?  I am reasonably comfortable in filing the returns next April myself which gives me access to 2025 TurboTax after it is fully operational and I have all the broker tax forms for 2025 and then finding someone at TurboTax to confirm how to enter the data from the tax forms I'll have if I do sell a lot of the stock this year.    I also have an EXCEL workbook that is producing very similar numbers, something I use for comfort each year.    My experience is that, if you call often enough and ask for escalation, you can eventually find someone at TurboTax who knows how to do something complex like this although I suspect you already have me on the right track.  In fact, the last question I was asking you was more along the lines of what you had already advised quite some time ago (albeit with a sale of all NUA stock) about which numbers to enter where in turbo tax.  Most important was my making sure I had a decent idea of how much NUA stock I could sell before year end and stay in the LTCG bracket I'm already in and I think I am there.  Time to pull the trigger but I just have to figure out how NOT to sell the stock shares that are from recent reinvested dividends (although I do have a small amount of short-term capital losses I could use from some TLH I did earlier, so I may not bother).  Thanks again, Romper.

[Romper]

Sorry I missed your drift regarding a TurboTax professional. I've had mixed results with phone calls. Realizing that the person is caught cold with your question is a challenge. A written response is better and provides a history.

A new posting would be interesting but given no responses to this, that may not happen.

If you are trying for an answer to make a sale before 12/31, that might be a stretch. Hopefully dmertz will reply. He is the sharpest I've found.

Bottom line using your example, I see the following:

250,000 LTCG not subject to NIIT plus, I believe, your exposure for selling half is the 50,000 of LTCG + the 3.8% NIIT on the 50,000.

At a 15% LTCG tax rate:

15% x 250,000 = 37,500

15% x 50,000 = 7,500

3.8% NIIT = 1,900 NITT for the 50,000.

Total = 46,900

Does not include other taxable income

[taxdean]

Yes, that is what I would get.  Hopefully, this dmertz will chime in.  As it turns out, I did not have dividend re-investment set up (was worried about it hurting tax loss harvesting opportunities), so the dividends were going into a money market fund I had set up (unfortunately, given how the market has performed) and I temporarily forgot about that and so I do not have to worry about any short-term capital gain after all.  I don't know if dmertz also agrees with your approach as to where, within turbotax to enter the adjustment so the NII doesn't get charged on the 250 that was pro rated from the NUA computed a little more than a year ago, but it would also be helpful to see his/her comment on that. Thanks all!

[Romper]

I think you have the info needed to decide as to how much, or if you want to sell. The method to exclude the NIIT using the worksheet for Form 8960 in TurboTax 2024 is clear. Looking at my TT for 2025, it appears to be the same.

Here's a go at a new posting. Edit or use it as you see fit...

You may need to sign to place it and get replies.

Subject NUA Question

Following my retirement, I transferred shares of company stock held in my 401k to a taxable account over one year ago.

There has been no dividend reinvestment nor purchases or sales of the company stock since.

The cost basis is 100,000. The value was 600,000 when moved to a taxable account, meaning 500,000 NUA would be the LTCG if I sold all the stock and it was still worth 600,000.

Today the stock is worth 700,000 and so I will have another 100,000 of potential LTCG.

I am considering selling half of the shares, which would result in 700,000/2 = $350,000 of proceeds which would have a cost basis of 100,000/2 = 50,000.

I believe I will have a LTCG of 350,000 – 50,000 =300,000.  I believe that the portion of that LTCG 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

Question:

Is my assumption that 50,000 is subject to the NIIT correct?

I am aware that sales from an NUA are LTCG regardless of the holding period and not subject to the NIIT. The exemption for the NIIT is claimed in the TurboTax Worksheet for Form 8960.

[taxdean]

Thanks again.  I did edit it, perhaps excessively, and posted again.  I'd be very pleasantly surprised if anyone comments meaningfully before I have to sell the stock but we'll see.  That said, I feel pretty confident that you have helped me nail it, since it seems to work nicely in a 2025 simulation via TurboTax 2024; at least until I see what is on the 2025 tax forms from the brokerage and, by then, I should have lots of time to figure out how to deal with things if there is any unexpected information there.

[Romper]

Great, let me know if you receive any responses.

Simulating one's expected income this time of the year using the prior year's TurboTax is important to make the decisions such as yours. It also gives guidance relative to withholding Fed and State taxes from RMD's.

If you're not aware, withholding Fed and State taxes from RMD's eliminates the need to file quarterly estimated taxes. Withholding enough from RMD's eliminates the penalty for late payment as long as your RMD is large enough.
Perhaps you can give me the URL or subject and I can monitor the replies??

[taxdean]

Thanks again.   I have self-employment income so need to file estimated taxes quarterly anyway and I use the 110% fail safe often. Here is the URL:

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/nua-question-need-ans...  

[taxdean]

It just occurred to me that, of the long-term capital loss I happen to have (another complicating factor that I didn't want to throw into the already-complicated scenario), I did not know how to pro rate that for NIIT purposes, but chatgpt assures me it should (must, I guess) all be applied to the NIIT portion of the LTCG.  That is very nice to hear!

[Romper]

It doesn't end...

You know that if you challenge ChatGPT or CoPilot they will give you another story.🙄

[taxdean]

Have you already tried?  Do you believe it is not correct?  Do you know what Turbo tax 2024 would do? Thanks!

[Romper]

Are you speaking about your LT Cap Loss?

I didn't understand just what you meant. Was that within the NUA? Perhaps more explanation?

How did you pose the question to ChatGPT

With ChatGPT and CoPilot I frequently encounter errors. Both are great sources but "Trust but verify".

Early on in my researching how to report the NUA sales I asked ChatGPT and CoPilot

Are proceeds from the sale of a stock held in an NUA subject to the NIIT.

Both answered that they were.

Following my challenge that the instructions for Form 8960 clearly stated they were not, both changed corrected their answer.

In checking today 12/30 the same question is now answered correctly.

It looks like you aren't going to get a response to your posting. Perhaps too complex of a question?

[taxdean]

Sorry if I was not clear.  Yes, I was talking about the long-term capital loss.  I was thinking that, logically, if the LTCG is being parsed into NIIT-relevant versus NIIT-irrelvant, that probably I would need to parse the capital loss proportionally when I did my NIIT calculation but chatgpt said no, that it could all be subtracted in the NIIT calc.  I don't recall how I posed the question.  Yes, I will not get an answer in time but I am confident you have given me good guidance and also, at least, I am working with chatgpt to determine how much stock to sell this year, although, frankly, it has been a nightmare; but with me cracking the whip, I think we'll get there in the next few hours.  Thanks.  The only reason I didn't do this optimizaiton myself is that I didn't have a great handle on QBI which has nightmarish 'cliffs' for folks like me who have no W-2 income.  if I had it all to do over again, I would have figured that out and done it all myself, given how much time i am spending checking and correcting chatgpt's work.

[Romper]

You've got your hands full with the NUA and QBI..

Fortunately, being retired for 20 years, my situation simple by comparison.

I believe ChatGPT was correct relative to the LTCLoss. 

It boils down to Proceeds minus Basis. In your case, all is prorated if half is sold.

Long‑term capital loss offsets other LT gains

[taxdean]

You said: << I believe ChatGPT was correct relative to the LTCLoss.

It boils down to Proceeds minus Basis. In your case, all is prorated if half is sold.

Long‑term capital loss offsets other LT gains. >>

I find that a bit unclear.  The issue was if some of my LTCG is subject to NIIT and some of it is not, then how do I determine how much long-term capital loss is to be used in the NIIT calculation.  Chatgpt claims it can all be used in the NIIT calculation which seemed great, but odd, to me since only a small portion of the LTCG needed to be included in the NIIT assessment.  Thanks.  I ended up selling all of the stock, so so much for prorating in the other sense but the NIIT versus non_NIIT portion pro ration, if any, question was still relevant.  Yes, I had my hands full.  Chatgpt is not very good at handling a problem this intricate, I found, FWIW. 

[Romper]

I'll have a reply later or in the morning