How To Avoid Wash Sale With RSU

In this article, we will talk about wash sale and RSU and how you can avoid making a potential costly mistake. This is especially relevant if you're looking to do tax loss harvesting.

Understanding Wash Sale

Imagine John, a software engineer, who works for a Big Tech company. John has 100 of his company's shares and wants to sell some of them. However, the company isn't doing too well, so he sold at a loss. However John forgot that his upcoming RSU vest in less than 30 days. Because that upcoming RSU vest is considered a buy event, this will be considered a wash sale. John will not be able to deduct this loss from his taxes and the loss will be reflected in his true cost basis for the stock.

Why Is Wash Sale Important?

When you sell a stock at a loss, it is considered short term or long term capital loss depending on how long you held the stock for. Capital loss can be used to offset capital gains, which are when you sell a stock for a profit. If you have more losses than gains, you can use that extra loss to deduct from your taxes. That extra loss can be carried over indefinitely, but you can only deduct a maximum limit of $3,000 per year($1,500 if married filing separately) of your losses from your taxes. A wash sale will roll your loss into your total cost basis, so that you do not actually have a loss. This will prevent you from being able to use the loss to offset your gains or deduct from taxes.

Example With Real Numbers

1. John has 100 META shares. The cost basis of each share is $200. This means the total cost basis is $20,000.
2. John sold 50 shares at $100, so he has a capital loss of $5,000 that he could've claimed on his tax return.
3. Due to wash sale, John can no longer claim them. Instead, the $5,000 is rolled into John's META shares's total cost basis, which is now $15,000 instead of $10,000.

Avoiding Wash Sale

There are two ways for John to avoid the wash sale, assuming he doesn't purchase the same company stock separately:

1. Sell the old shares more than 30 days BEFORE his upcoming RSU vest.
2. Sell theupcoming RSUs.

In some cases, companies have restricted trading window. Make sure to account for those when selling your shares.

Figuring out everything could be a bit confusing, that is why we built the wash sale calculator to help you determine if you will trigger a wash sale!