Question

Which of the following is/are correct regarding the net unrealized appreciation (NUA) for stock distributed from a stock bonus plan? OC. NUA is not taxed as a long-term capital gain when the stock is ultimately sold. Both a and b. a.NUA is not taxed at the time of the lump sum distribution b. NUA is the appreciation of the stock while held in the plan.

Answer 1

Both option (a) & (b) are correct regarding the net unrealised appreciation for a stock distributed from a stock bonus plan.

The explanation is as follows :-

Net unrealized appreciation (NUA) is the difference between the original cost basis and current market value of shares of employer stock.

Net Unrealized Appreciation” (i.e., the embedded capital gain) taxed at favorable capital gains rates outside of the account. However, to take advantage of these special NUA rules, there are specific requirements – that the stock must be distributed in-kind, as part of a lump sum distribution, after a specific triggering event like death , retirement etc..,

The actual Net Unrealized Appreciation (i.e., unrealized gain above that cost basis) of the shares are taxable as long-term capital gains, but the capital gains tax event doesn’t occur until the shares are actually sold .