Wash Sale Rules and RSUs
Wash sale rules and RSUs go together like PB&J, just not in a fun and filling way!
Wash sale rules are commonly misunderstood and overly feared. If you have RSUs, you probably know that you need to be aware of wash sale rules, but the rules can be confusing and may leave you unsure when/whether you’ll be affected or not.
The purpose of this article is to teach you about wash sale rules. Our goal is to explain them to you clearly enough that the lightbulb turns on and you finally understand how to navigate wash sales in a way that makes it easier to properly manage your RSUs.
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If at the end of this article you still have questions (or you love it so much that you want to hire us), please reach out to us at team@equityftw.com.
Wash Sale Rule Context
The first bit of context you need to understand before we dive into our discussion of wash sale rules is that the IRS takes more issue with losses than it does with gains.
With gains, you’ll probably pay taxes.
With losses, you’ll probably receive a benefit to help reduce the taxes you’ll pay.
Because of this potential benefit, the IRS puts limits on how losses can be used and has created barriers so that you can’t just gather losses in a single stock you trade frequently. (Discussed in our Tips for Selling RSUs at a Loss article.)
What is the Wash Sale Rule?
The wash sale rule is a tax rule that says you can’t immediately claim a loss on a stock sale if you buy/bought the same stock within 30 days before or after the sale.
Here’s an illustration to help you visualize the timeline:
If you make a purchase within this “Wash Sale Zone” and trip/trigger a wash sale, instead of letting you take the full loss from a sale, the IRS requires you to attach your losses to whatever other shares were purchased.
We understand that you’ve probably read this definition before, so we’ll break down Wash Sales further into three separate parts.
When RSUs vest it’s technically not a purchase, but the IRS considers the act of vesting as an acquisition for wash sale purposes.
We’ll discuss this further in Part 3 below, but it’s important to note here that wash sales are not all or nothing. If you sell 1,000 shares of AMZN for a $200k loss, triggering a wash sale with a purchase of 1 share of AMZN would only disallow the losses on a single share. This is a common misconception that we hear ALL the time.
Part 1 of The Wash Sale Rule
Part one of the wash sale rule says that you cannot sell a stock at a loss and then buy it back within 30 days after that sale.
This part is pretty straightforward and usually makes sense to most people.
For example, if I owned TSLA stock, sold it for a loss, then bought back the same number of shares shortly thereafter, the IRS would say, “Are you sure about that?!” and would disallow the loss you took from the shares that you previously sold.
Now rather than the disallowed losses disappearing entirely, the disallowed losses get added to your cost basis of the newly purchased shares.
Here’s an example illustrating part 1 of the wash sale rule:
Purchased 1 share of TSLA 1/2/25 @ $400
Sold 1 share of TSLA on 3/14/25 @ $250
(On 3/14/25, you have a $150 loss and it’s allowed.)
Repurchased 1 share of TSLA on 3/18/25 @ $230
(Your loss is now disallowed and is added to the basis of your recent purchase.)
Current holding = 1 share of TSLA with a cost basis of $380 per share.
Here’s an image to help illustrate:
As you can see, because you bought the same stock and the same number of shares shortly after you sold at a loss, you’re tripping/triggering a wash sale.
The $150 loss was going to be immediately usable, but by purchasing the same stock, you trip/trigger a wash sale. So now, instead your loss gets suspended and applied to what you paid for the new share of stock.
Your loss isn’t gone forever, it’s simply deferred and you’re starting a new holding period with the latest purchase.
Part 2 of The Wash Sale Rule
The second part of the wash sale rule says that you can’t immediately claim a loss on a stock sale if you buy/bought the same stock within 30 days before the sale.
This is the part that confuses people the most and is really easy to overthink. I know you overthinkers out there are probably wondering, “If I buy one share of something, and it drops 50% the next day, is selling my share a wash sale under this definition?”
Assuming there are no other purchases or RSU vests, the answer is “No.”
Because this part of the wash sale rule is the hardest to understand, I suggest adjusting the language/framing of this rule to, “You cannot sell a stock at a loss and have a separate purchase within 30 days before that sale.”
In order to trip/trigger the wash sale rule, there have to be three transactions, two buys and one sale.
For Part 1 of the wash sale rule, the order of the transactions is buy, sell, buy.
For Part 2 of the wash sale rule, the order goes buy, buy, sell.
Let’s look at an example:
Example of Part 2 of Wash Sale Rule with Monthly RSUs Vesting
Let’s say you receive monthly vests of RSUs at EquityFTW (ticker EFTW).
1/1/25 - 2 shares of EFTW vest @ $100
2/1/25 - 2 shares of EFTW vest @ $10 (shareholders aren’t happy)
2/15/25 - The 2 shares from 1/1/25 are sold at $20/share
If wash sale rules didn’t exist, you’d have a capital loss:
Cost basis = $100/share
Sale price = $20/share
$80 loss per share x 2 = $160 total capital loss
But because wash sale rules do exist, your $80 loss per share is disallowed and gets added to the RSUs that vested on 2/1/25.
So after all of these transactions, you’d have $0 of realized losses, but 2 shares of EFTW with a cost basis of $180 total ($20 + $160).
Here’s an illustration of this example:
Shareholders of EquityFTW should be more disappointed in the drop in stock price than the tripped/triggered wash sale rule.
Of course it’d be ideal if the person in this example could use the $160 disallowed loss, but at least these losses are likely to become usable at some point down the road.
Part 3 of Wash Sale Rule - Partial Wash Sales
The third and final part of the wash sale rule is that you can have partial wash sales.
We mentioned it in a small note above and will repeat it again here. If you trigger the wash sale rule because of one share, you’ll only disallow the loss from one share. It won’t disallow/postpone your entire loss.
Here’s an example building off our TSLA example, now with a partial wash sale:
Purchased 1,000 shares of TSLA 1/2/25 @ $400
Sold 900 shares of TSLA on 3/14/25 @ $250
(On 3/14/25, you have a $150 loss per share, $135k total, currently allowed)
Repurchased 10 shares of TSLA on 3/18/25 @ $230
(Your loss is now partially disallowed and the disallowed portion is added to the basis of your recent purchase.)
Here’s an image to help illustrate:
After all of this, you’d be left with the following holdings:
100 shares of TSLA with a cost basis of $400 per share ($40,000 total)
10 shares of TSLA with a cost basis of $380 per share ($3,800 total)
And the final loss that wasn’t affected by the wash sale rule has been reduced to $133,500.
It’s unfortunate that you sold stock at a loss, but the good news is that you at least get to hang on to the vast majority of your loss without it becoming disallowed!
Why Are People Afraid of Wash Sales With RSUs
We mentioned this previously, but it bears repeating here. The top two reasons people are afraid of wash sales with their RSUs are:
They think that their losses are gone forever.
They think that one single share can screw up the losses on multiple shares.
As you now know, both of these are misconceptions. Many times advisors warn about wash sales without acknowledging the fact that partial wash sales can even happen.
Dealing with wash sales can be a bit of an annoyance, but once you understand them, you realize that in most cases you’ll still be able to reap whatever benefit there might have been to claiming a loss.
Tips for Avoiding Wash Sales on RSUs
Now that you understand the 3 primary parts of wash sale rules and how they apply to RSUs, you’re probably wondering how about tips to avoid wash sales altogether.
We have 5 tips, some might be more applicable than others based on the company you work for and the vesting schedules offered.
Tip #1 - Know The Important Dates
Whether you like to mark things on your calendar or set reminder tasks on your phone, you’ll want to be aware of all of the important dates throughout the year.
Here are some dates you’ll want to be aware of.
When you have RSUs vesting
The value of the RSUs vesting
When ESPP purchases will happen
When your company will have open trading windows
Being aware of these four things is the first step towards making a sales plan that doesn’t trip wash sale rules.
Tip #2 - Know Which Months Have 31 Days
You probably know how many days are in each month (Cue, “Thirty days hath September…”), but it still helps to see what that looks like in a graphic. Here’s an image showing the number of days from the 1st to the 1st of each month in 2025.
When you look at this, your eyes should jump to all the months with 31 days.
Many companies have vesting that happens on the first of the month or the fifteenth of the month.
So while it seems like a small thing, being aware of which months have the most days is helpful because it can make avoiding wash sales a little easier.
Tip #3 - Trade on or Shortly After Vest
The other tip we have is to trade immediately after vest. Some companies let you elect to do a same-day sale of your RSUs at vest, others require you to wait until the shares have actually settled.
Even for reasons unrelated to wash sale rules, it often makes sense to sell RSUs immediately after vest.
Here’s a quick example timeline of what happens if you trade on the first of the month:
2/1/25 - Sell shares at loss
3/1/25 - New RSUs vest, triggering a wash sale from the 2/1/25 sale (since it’s within 30 days)
3/1/25 - Sell the new RSUs, locking in the full loss from 2/1/25
4/1/25 - New shares vest a full 31 days later and you’re in the clear
Even if you partially trip wash sale rules, it’s not the end of the world. As trades happen, you can always adjust your sales plan as needed. Not everything has to be predecided.
Tip #4 - Pick Specific “Lots” to Sell
The next tip we have is to hand-select which RSUs you want to sell.
The word “lot” simply refers to the date on which a group of RSUs vest.
If you’re looking at consolidated views, you won’t be able to see all the specific dates and many stock plan custodians opt for you to sell the first RSUs/shares you acquired (FIFO) vs the latest RSUs/shares that vested.
If your plan is to sell everything all the time then it won’t matter, but if you choose to hold some RSUs then you’ll want to be strategic about which lots you sell vs hold onto.
Tip #5 - Have a Plan for the Year
The biggest tip we have for managing wash sales with your RSUs is to make sure you take all the information from above and build a rough plan for the year.
You can adjust the plan as needed, but by building out what you expect and want to happen, you can make sure that you’re intentionally using your RSUs to build your wealth.
For our EquityFTW clients, we provide a task-tracking system that notifies them (and us) about the important dates on which they’re planning to trade. We all know that life can get pretty hectic and a little reminder never hurts!
Wash Sale Rules and Monthly RSU Vests
Making a plan around wash sales when you have RSUs that vest monthly is difficult because there are only a few months in a year in which partially avoiding wash sale rules is even possible.
And if you can’t elect to do a same-day sale at the company level, the timing between vest to having settled/sellable shares might make it impossible to completely avoid wash sales.
It’s annoying to deal with, but eventually disallowed losses work their way to you. Sometimes it just takes longer than you’d like.
Final Thoughts on Wash Sales and Properly Managing Your RSUs
RSUs are super fun to track and manage as they grow in value. But seeing them lose value and then having to deal with disallowed/deferred losses is less fun. If you’re reading this article, it may be because your company stock isn’t doing as well as you’d like it to and, if that’s the case, we feel for you.
It’s important to remember that regardless of how your company stock is performing, you can still leverage the compensation you’re receiving to achieve the financial goals you have.
We believe in doubling down on the basics of investment management and RSU management so that you can focus on things that truly matter to you.
In practical terms, this means that you should have a simple, well-defined plan in place so you don’t have to worry about what you should be doing every month/quarter.
If you’d like to read about the advice-only services we provide or would like to schedule some time with us, please do. Thanks for reading! We look forward to hearing from you!