NUA and 0% Cap Gains Rate
Client’s tax bracket is 15% federal – if they do an NUA transfer and sell the stock – assuming that after the sale they are still in the 15% federal bracket – do they then have 0% capital gains rates in 2008? If this is the case shouldnt people in low brackets always do an NUA in 2008? What am I missing?
Permalink Submitted by Alan Spross on Tue, 2008-01-08 23:02
While there is potential for tax savings using the -0- bracket for the next 3 years, it may also be easy to over estimate that advantage:
1) The savings is only 5%, and none at the state level
2) LT gain is still included in AGI, potentially reducing some itemized deductions and exposing more SS income to inclusion in AGI
3) Long term investment and savings goals should retain priority over short term tax savings.
As such, the situation differs somewhat for those who have already taken their LSD of employer shares vrs. those tempted to distribute more shares as NUA vrs the IRA rollover solely because of the 3 year -0- bracket on LT gains. If you sell too many shares, some of the gains may spill into the 25% bracket, and if you defer NUA sales too long, lack of diversification can become a problem. If the values fall, then the NUA is wiped out by market conditions and it may take several years to recover the original amount of NUA.
Also, the more NUA shares distributed in 2008, a greater share of the 2008 15% bracket is filled by the taxable cost basis. This means that the sales may have to wait until 09 or 10 in order to fit into the bracket. After 2010, not only is the -0- bracket for the gain gone, but no guarantee that the 5% and 15% tiers will still apply to LT gains or qualified dividends from the shares.
In summary, there IS a limited opportunity for those who have enough of the 15% bracket to fill for the next 3 years, and can navigate the other caveats above.
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