Treating ESOP NUA as long-term capital gain

[celenza]

My wife received her ESOP distribution in 2023 when she retired. She received a 1099-R for this lump sum distribution showing:

Box 1 Gross Distribution

Box 2a Taxable amount (~10% of the gross

Box 4 Federal income tax withheld (<0.1% of the gross)

Box 6 NUA (~90% of the Gross

Box 7 Code 7

We were told that for tax purposes we should treat the NUA as a long-term capital gain. My question is, how do I enter this using Turbotax Premier (Mac desktop) so that it is treated as a long-term capital gain? Just entering the 1099-R info as is does not include the NUA as taxable come.

Thanks for any suggestions!

[dmertz]

The NUA only becomes taxable as LTCG when the shares are sold.  When they are sold they will be reported on Form 1099-B as non-covered shares where you'll need to provide the cost basis (or at least confirm that the cost basis shown on the Form 1099-B is correct.

Also keep in mind that any capital gains subsequent to the distribution from the ESOP account are short-term until the shares have been outside the ESOP account for a year or more.

Apparently there was a small amount of cash distributed with the ESOP shares since without cash being distributed there can be no tax withholding.  There's a good changes that cash was pre-tax money that was included in the taxable amount in box 2a.  If so, that would make the total cost basis of the ESOP shares the amount in box 2a minus the amount in box 4.

[celenza]

Thank you dmertz! I should have clarified that all of the shares were immediately bought back by the company and my wife received the distribution as a lump sum cash. I expected that we would also receive a 1099-B.  Being naive about this, do they have to issue a 1099-B or can we enter it as long-term capital gain independent of a 1099-B?

[dmertz]

The brokerage is required to report the sale on Form 1099-B.  If provided on a consolidated 1099 for 2023 combining Forms 1099-B, 1099-DIV and 1099-INT, the brokerage has until February 15, 2024 to provide that.

[celenza]

Thank you - I will make sure to follow up with the brokerage if we don't get the 1099-B in the next few days.