Net Unrealized Appreciation (NUA)
What happens when you take stock out of your 401k using the NUA rule and sell it within one year? When your 401k stock is converted to an after tax account, it come with a new average basis price for all shares. When the The NUA stock is sold it is taxed as a the long term sale against the basis tax. Stock sales within one year create another problem. At the end of the day of conversion the stock has a fair market value (FMV). If the sale within one year is above the FKV, there is another short term gain. (This does not apply to sales after one year.) But what is the situation if the sale within one year is less than the FMV? Is there a short term loss to offset the long term gain?
Assume the basis is $40, the FMJ is $110 and the sale at six months is $100. The long term gain is $60 but is there also a $10 short term loss?
Permalink Submitted by Alan - IRA critic on Fri, 2018-02-23 03:10
If the shares are sold for less than the FMV on the date of distribution from the 401k, there is no loss to report, just a reduction in the amount of NUA per share. In your example, only a LT gain of $60 will be reported. There is no loss to be reported, so this is quite simple to report on Form 8949. NUA can come and go based on market changes, but it cannot increase over the original amount of $70. If it went to 80 when sold, there would be a ST gain of 10 to report in the first year or additional LT gain if over a year.