Tax Treatment of NUA Stock which declines in value after Distribution
If NUA shares decline in price, after NUA distribution and the shares are then sold, is there both an NUA gain and a Short/Long Term capital loss, (depending whether the stock is held one year or less)? Lots of examples show the tax treatment if the stock appreciates in value. I just want to make sure that the NUA stock is also eligible for Capital losses if the share price declines after the NUA distribution. Thanks!
Permalink Submitted by Alan - IRA critic on Tue, 2017-01-17 20:07
If the stock declines after distribution, there is just less NUA per share to report for the sale. There is no cap loss, just a lower LT cap gain. The shares would have to decline below the 1099R cost basis for there to be a cap loss.
Permalink Submitted by Andrew Zahn on Wed, 2017-01-18 14:24
Thank you for your reply. I didn’t know if a loss was handled as a single transaction or two distinct transactions with an NUA gain and a long or short term capital loss based on the distribution price. Appreciate your help in clearing that up for me.
Permalink Submitted by Alan - IRA critic on Wed, 2017-01-18 16:05
Reporting can be a challenge whenever more than one entry is needed on Form 8949. In your example, only one entry as LT cap gain is needed. However, suppose participant has additional gains after the LSD but sells within the first year. Now participant must report a LT gain for the NUA, and a ST gain for the additional gains. The IRS does not provide to my knowledge any reporting guidance. To improvise in reporting the ST gain, the participant would need to show the value of the shares at distribution as the cost basis in the ST portion of the form. This means that the sale would have to be reported twice, once in the LT portion and again in the ST portion of the form. There is no flag that shares are NUA shares, so an explanatory statement would be required.