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Last week’s podcast looked at a 100% NUA election of an employer security into a taxable brokerage account. The example
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assumed you decided to sell 200 shares on the same date as the NUA transfer was completed. Stock A on that
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date was $50 per share, and the cost basis was $10 per share. The taxation of the 200 shares of Stock A would have
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been $8,000 in long-term capital gains. In today’s example, you decide to wait 3 months until after the NUA transfer to
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sell those same 200 shares of Stock A. Stock A has risen to $55 per share on the date of the sale. In
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this case, the taxation would include both long-term capital gains and short-term capital gains. The long-term
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would be $8,000, which is the difference between the $50 on the NUA date and the $10 cost basis. The short-term would be
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$1,000, which is the $5 growth since the NUA date. This short-term gain will be
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taxed at ordinary income tax rates. The reason for the short-term is that any increases or decreases in market price
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after the NUA date resets the holding period rules. One year or less is short-term capital gains, and one year plus
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one day or more is long-term capital gains. In this example, if you would have waited to sell until one year and one
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day after the NUA, the $1,000 would be taxed at long-term capital gains rates.
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In our next episode, we will discuss a strategy based on selecting specific cost basis lots for the NUA. Until our
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next episode, keep searching for opportunities to enhance your wealth.
