Reporting a Stock Sale with ST & LT Gains

Forum|Forum|5 years ago
September 30, 2020
1 reply
0 views

I have received stock this year as part of an NUA (Net Unrealized Appreciation) 401(k) distribution. The stock has gained value from the date of the distribution which means I owe taxes for both Long and Short Term for each share sold this year.

How do I report both LT & ST gains for a single sale in TurboTax?

Best answer by dmertz

How do I handle a stock sale with both LT and ST amounts (and different basis) in TurboTax?

The broker will breakdown the sales into ST & LT on the 1099-B based on the time you held the stock after the distribution. Each share of stock will have a cost basis that you have already paid taxes on it in the year of distribution. One share of stock sold cannot be both short and long term at the same time(or broken out by percentages).

So say you have 100 shares in company stock to move and you originally bought 10 shares (@$10 each ) and are taxed on those 10 shares at distribution (on the 1099-R) that means you now have 100 shares worth $1 each. So the cost basis in all those shares are $1 each.

So ... if you have 100 shares and you sell 10 before a year has passed then all 10 shares are considered short term sales. Then any stocks sold after one year are long term sales. If you broker doesn't break down the sales for you then you will need to do the math and enter the sales into the program manually.

Shares distributed in-kind from retirement accounts are often (perhaps always) recorded the broker as uncovered shares, so there's a good chance that the broker will not report a cost basis for these shares. They might also report these shares as having an unknown holding period.

Ultimately your tax return must report the correct dollar amounts of LT and ST gains. One way (perhaps the only way) to do that would be to enter each share twice as you suggest, LT with the sales proceeds equal to the value on the date of distribution from the 401(k) (the share value reflected on the Form 1099-R) and the actual cost basis (also determined from the Form 1099-R by subtracting the NUA from the share value) and again as ST with the sales proceeds equal to the value on the date of the sale and a cost basis equal to the value on the date of the distribution. It's the method that I thought of independently before seeing that you had suggested the same thing.

Using this method with your example, yes, you would report a LT sale of $100 with $50 of cost basis and a ST sale of $110 with a cost basis of $100, resulting in $50 of LT gain and $10 of ST gain on Schedule D as you indicated. My only concern is whether the reporting on Form 8949 which will show what the IRS expects to see under these circumstances. I would probably include an explanation statement with my tax return describing this sale and why the sale appears twice on From 8949. I have not been to find any guidance from the IRS on how to report this.

Critter-3

The sale must be split between long and short term which should be reported on the 1099-B from the broker in February of next year. Ask the broker how they will report it ... ask them to explain it to you.

ThomasMConnorsAuthor

Say it's 100 shares sold at $110 and the NUA Distribution Basis is $50 with a NUA distribution day price of $100. That is a LT gain of $60 and a ST gain of $10 per share.

If you are not familiar with NUA, each of the individual shares have a dual LT and ST capital gain/loss for the first year after the NUA distribution. (Assuming a price change +/- from the UA distribution day price when sold.)

So it would be reported as this?

100 @ $110 basis $50 as Long Term

and

100 @ $110 basis $100 as Short Term

Critter-3

The NUA reported on the 1099-R is informational only ... what did you do with the stock? Sell or roll ?

Did you roll it to a regular broker account ? Or an IRA?

https://www.kiplinger.com/article/taxes/t054-c032-s014-nua-is-a-well-kept-secret-with-big-tax-benefits.html

What does the 1099-R look like ? What code is in box 7? Is the taxable amount in box 2a the same as box 1 & 6 ? Did you get a lump sum ?

1099-R instructions:

Box 6. If you received a lump-sum distribution from a qualified plan
that includes securities of the employer’s company, the net unrealized
appreciation (NUA) (any increase in value of such securities while in
the trust) is taxed only when you sell the securities unless you choose
to include it in your gross income this year. See Pub. 575 and
Form 4972. If you roll over the distribution to a designated Roth
account in the same plan or to a Roth IRA, see the instructions for box
2a. For a direct rollover to a designated Roth account in the same plan
or to a Roth IRA, the NUA is included in box 2a. If you didn’t receive a
lump-sum distribution, the amount shown is the NUA attributable to
employee contributions, which isn’t taxed until you sell the securities.