Depreciated NUA
Thinking I was being very clever, I took my former employer stock out of my 401k under the NUA provisions. For simplicity sake, let’s say my cost basis was $50k, by the time I received it the value was $45K and it promptly plummeted to around $25K (so there never was any net unrealized appreciation at all). It’s been more than 60 days so I can’t roll it over to my IRA now. Is there any hope for me? I hate having to pay tax on the full $50k. I don’t really want to sell at this low point either but would if it would make a difference. I don’t have any gains either that I could offset it with. If I sell and bought a similar but different stock would I be limited to the $3,000 loss carryforward? Thanks for any help.
Permalink Submitted by Alan Spross on Wed, 2008-12-17 06:09
There is no limit on a loss carryover, but the 3,000 is the max cap loss you can take against ordinary income this year.
Usually NUA is only cost effective if the cost basis is less than 30% or so of the FMV. Perhaps your numbers are only hypothetical, but to have your NUA totally wiped out by the time you received the stock is pretty shocking, except in the present market. But if so, you should have rolled it over to an IRA and wiped out the tax on the ordinary income. Now you are stuck with the tax on the cost basis.
At this point, there is no real tax advantage to selling, so you should probably be guided by the outlook for these shares and the chance for recovery. Actually, there would be an advantage to dumping this for your heirs, because NUA does not get a step up in basis and a replacement stock would. But estate concerns are pretty minor at this point in time.
Permalink Submitted by Kathleen Allan on Thu, 2008-12-18 01:36
I appreciate your thoughtful reply. I was afraid that was the situation and will look to harvest some losses to partially offset the damage I’ve done.