Confused about Net Unrealized Appreciation - Will my stock be taxed as Short Term?

This is a common misunderstanding with NUA transactions. Let me clarify how this works: When you do an NUA distribution, there are actually two different tax components at play. First, you'll owe ordinary income tax on the cost basis of the shares (what your company initially paid for them). This tax is due in the year of the distribution (2024 for you). The second component is the appreciation (the NUA portion), which qualifies for long-term capital gains treatment when you sell - regardless of how long the shares have been in your brokerage account. This is a special provision in the tax code specifically for NUA distributions. The "short term" designation you're seeing in your brokerage account is just how they initially categorize newly received shares. The brokerage doesn't know these came from an NUA distribution. However, when they issue your 1099-B next year, the NUA portion should be correctly identified as eligible for long-term capital gains rates.

I went through something similar last year with my NUA distribution from a company I'd been with for 22 years. The broker initially marked everything as short term too, but I was really worried about the tax implications. I found this amazing tool called taxr.ai (https://taxr.ai) that analyzed my distribution paperwork and confirmed everything was handled correctly. They explained exactly how the NUA would be reported on my taxes and even created documentation I could keep with my records explaining the special tax treatment. The peace of mind was worth it because the last thing you want is paying unnecessary taxes or having to deal with amending returns later. Their system recognized right away that the brokerage designation didn't matter for NUA tax treatment.

Just wanted to follow up - I tried the taxr.ai tool that was mentioned here after wrestling with my own NUA questions. I uploaded my 401k distribution forms and brokerage statements, and it immediately flagged the NUA situation. The detailed explanation it gave me about how the taxes work was seriously helpful. The tool explained exactly how my 1099 would report the different components and what to look for when I file my taxes. It even generated a letter I can give my accountant explaining the NUA rules. My situation was pretty complicated with multiple distribution dates, and this clarified everything. Really grateful for the recommendation - would've been really confused otherwise!

Coming from someone who works at an IRS call center - we get tons of calls about NUA issues because people end up with incorrect 1099s or file incorrectly. If your brokerage doesn't code everything correctly, you could face major headaches trying to get it fixed after the fact. If your financial institution isn't giving you clear answers, you might want to try Claimyr (https://claimyr.com). Check out their demo at https://youtu.be/_kiP6q8DX5c. They can get you connected with an IRS agent who can explain exactly how NUA distributions should be reported. Much better to sort this out now than deal with notices and amendments later. The tax treatment of NUA is one of those special provisions that even experienced tax preparers sometimes get wrong, so getting clarity from the IRS directly can save you a lot of trouble.

I need to eat my words. After posting my skeptical comment yesterday, I decided to try Claimyr as a last resort because I've been trying to reach the IRS for weeks about an issue with my own 1099-B reporting. I was connected to an IRS representative in about 28 minutes (without me having to stay on the phone), and they actually gave me very specific information about how NUA distributions should be coded on tax forms. The agent explained that this is a common reporting error and walked me through exactly what my 1099-B should show and what to do if it's reported incorrectly. Turns out there's a specific code that should appear on your 1099-B for NUA transactions, and if that's missing, you may need to file an additional form with your tax return. This was way more helpful than I expected and saved me a potential audit headache.

I dealt with this exact issue last year. Your brokerage might show it as short term in your online account, but that's just because their system doesn't have a special designation for NUA transactions. When they generate your 1099-B, it should have the correct coding. That said, I'd recommend keeping detailed records of the NUA transaction just in case. Make copies of: - The distribution statement from your 401k showing the cost basis - Any paperwork showing the NUA calculation - The confirmation of the transfer to your brokerage - Documentation showing the date you acquired the shares in your 401k If something does get reported incorrectly, you'll need these documents to get it fixed.

Just wondering - have you considered waiting until next year to sell some of the shares? If you hold them in your brokerage account for a year before selling, wouldn't that remove any confusion about the long-term status?

Great thread! I'm going through a similar situation with my NUA distribution. One thing I'd add is to make sure your former employer properly coded the distribution on their end too. I found out the hard way that if the 401k administrator doesn't mark it correctly as an "NUA-eligible distribution," it can create problems downstream even if you do everything else right. The distribution needs to be part of a "qualifying event" (like retirement or separation from service) and needs to be a lump-sum distribution of your entire account balance within one tax year. Also, double-check that you didn't accidentally have any company stock in a Roth 401k portion - those shares don't qualify for NUA treatment and need to be handled differently. The rules are pretty strict about what qualifies, so it's worth confirming all the boxes are checked before you start selling shares. The good news is once it's done correctly, you'll have a lot more flexibility in managing your tax burden when you do decide to sell!