Net Unrealized Appreciation (NUA)
What it is:
How it works/Example:
Why it matters:
Notably, a good or service is only worth what someone is willing to pay for it. As such, unrealized gains and losses are little more than numbers on paper -- you can't pay the bills with NUA. After all, the essence of NUA is that the gain is unrealized. That is, the security has not been sold.
NUAs, however, can trigger tax liabilities. For example, when employers give stock to employees, the portion of the value of that stock that is attributable to an NUA is sometimes subject to ordinary income tax or capital gains tax even if the recipient has not actually sold the stock.
NUA is the reason the term "paper millionaire" is significant -- owning 40% of a tech company that is "worth" billions has little impact on the owner's checking account until he or she sells the shares.