Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
NUA & Stock Split
Posted by: Envision22, December 2, 2015 10:07PM
The stock I have with a company has considerable NUA remaining. It was announced recently that the stock will split 2-1. How does this affect the cost basis of the stock as it relates to the IRS?

Re: NUA & Stock Split
Posted by: Alan S., December 3, 2015 02:36AM
The cost basis per share and the NUA per share is reduced in proportion to the split ratio. For example in a 2 for 1 split if the original cost basis is $30 per share and NUA of $50 per share, the post split cost basis is $15 per share and NUA is $25 per share. Since there are twice as many shares, the total cost basis and NUA remains the same.

Re: NUA & Stock Split
Posted by: Envision22, December 4, 2015 11:30PM
Thanks!

Re: NUA & Stock Split
Posted by: Envision22, April 17, 2017 11:14PM
Just to confirm, if I had 1000 shares with an original cost basis of $7.21/share, a 2-for-1 split provides me with 2,000 shares at a cost basis of $3.61. Correct?

Since I've owned the original stock for over 2 years, do the additional 1,000 shares qualify for long term capital gains if sold immediately?

Re: NUA & Stock Split
Posted by: Alan S., April 18, 2017 02:03AM
Yes, the cost basis drops as you indicated. If you sell now all gains on all shares are LT gains.

Re: NUA & Stock Split
Posted by: Envision22, April 18, 2017 07:09PM
Thanks! I completed Form 8949 and have question on Schedule D Line 17 - "Are lines 15 and 16 both gains?" MY answer is yes and it tells me to go to Line 18, which asks, "Enter the amount, if any, from Line 7 of 28% Rate Gain Worksheet."

Am I correct in that I only need to complete the 28% Rate Gain Worksheet if any of my Capital Gains were from a 1202 Exclusion from gain on qualified small business stock or from a gain/loss from the sale or exchange of a collectible (art, rugs, antiques, etc.) as a capital asset.

In my case, I just sold corporate stock.

Answer affects how I calculate the tax - using the Schedule D Worksheet or the Qualified Dividends and Cap Gain Worksheet. Using the QDCGW results in no capital gains tax.

Is it possible that I don't have to pay capital gains tax if the amount I sold of >2 year stocks stocks represented an income level of <$30,000. I've read this is the case, but not certain.

Appreciate your insight. Thanks in advance.


Re: NUA & Stock Split
Posted by: Art, April 18, 2017 07:17PM
I don't have a specific threshold amount, but generally yes you are right. Sec 1202 is not 28% gains however.

FYI almost all of of the 28% gains I see is from GLD or SLVR.

Re: NUA & Stock Split
Posted by: Envision22, April 18, 2017 07:24PM
Thanks, so it's feasible that if I cashed out <$30K worth of stock, and this was my sole income (first year doing this), I may not have to pay Cap Gains tax? $30K is in the 15% tax bracket.

Re: NUA & Stock Split
Posted by: Art, April 18, 2017 08:30PM
Correct. But it depends on both CG income and also other income. See the worksheet.

Re: NUA & Stock Split
Posted by: Envision22, April 18, 2017 08:33PM
Thanks, again! Always appreciate your quick replies.

Re: NUA & Stock Split
Posted by: Envision22, April 18, 2017 08:43PM
No income other than stock sale this particular year.

If I just sold corporate stock, then I don't need to complete the 25% Rate Gain Worksheet. Hence, I should use the Qualified Dividends and Cap Gain Worksheet to determine the tax? If I use this, then there is not capital gains tax owed.

Re: NUA & Stock Split
Posted by: Art, April 18, 2017 10:18PM
Unless you held the stock for over a year from exercise date, which is usually not what people do when exercising NQSOs, the gain or loss is short term and the worksheet is not needed.

But if it's a typical same day exercise and sale, there's usually a small short term loss equal to the broker's fees. In this case I assume no gain so no tax on capital gains/losses, and no need for the worksheet.

Re: NUA & Stock Split
Posted by: Art, April 18, 2017 10:18PM
duplicate

Re: NUA & Stock Split
Posted by: Alan S., April 19, 2017 10:40PM
However, these shares were not NQSOs. They were employer shares distributed with NUA.

While all gains here are LT due to holding the shares more than 1 year in the taxable account, the sale can be reported with a single entry in the LT section of Form 8949.

But if you intend to hold these shares for many years, you should document in your records the amount of what value per share (adjusted for splits) represents NUA since NUA does not get a basis adjustment at your death. NUA is treated as IRD, so whoever would inherit these shares must break out the amount subject to basis adjustment from the amount of NUA.

Also, due to the reporting issues with NUA, you should avoid reinvesting dividends or you will end up with some of the shares not having any NUA and a different cost basis from the NUA shares. That could be very confusing to report, confusing to the broker tracking your cost basis, and confusing to the IRS.



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