RSUs and the Wash Sale Rule: The Trap Most Tech Employees Miss

You sell some RSU shares at a loss, expecting to write it off on your taxes. Then your accountant tells you the loss is disallowed. If you’ve never heard of the wash sale rule, this is the moment it introduces itself, and for RSU holders, it’s easier to trip than most people realize.

What Is the Wash Sale Rule?

The wash sale rule stops you from claiming a tax loss on a stock if you buy the “same or substantially identical” stock within 30 days before or after the sale. That’s a 61 day window total: 30 days on each side of the sale date.

The idea behind it is simple. The IRS doesn’t want you selling a stock purely to claim a loss on paper, then immediately buying it right back. If you do, the loss is disallowed for that tax year. It doesn’t disappear completely. It gets added to the cost basis of your new shares, so you’ll benefit from it eventually. But “eventually” isn’t “this April,” and that timing gap catches people off guard.

Why RSUs Make This Trap So Easy to Fall Into

Here’s the part most people miss: a new RSU vest counts as a purchase in the eyes of the IRS. You didn’t place a buy order. The shares just showed up, like they always do. But for wash sale purposes, that vest is treated exactly like buying more stock under the broadly accepted interpretation of the rule.

If your company vests shares monthly or quarterly, you’re acquiring new shares on a regular schedule whether you’re paying attention or not. Sell older shares at a loss, and there’s a real chance a scheduled vest lands inside that 30 day window, before or after, without you ever deciding to “buy” anything.

Where Tax Loss Harvesting Comes In

The right move when you’re overexposed to your employer’s stock is usually to sell and diversify, though trading windows, lockup periods, and estate planning considerations can affect when that’s actually possible. This is one piece of the bigger picture of managing equity compensation as a whole, not just this one rule.

But many people hesitate even when they can sell, because they don’t want the tax bill that comes with gains. So they wait for a dip. And when the stock drops, they sell at a loss to harvest that loss and offset other gains. It feels like a two for one: reduce concentration and get a tax benefit at the same time.

The problem is this logic can backfire in a few ways:

• The wash sale trap. A scheduled vest within 30 days disallows the loss and keeps you just as concentrated as before.
• Anchoring to the stock. Some people harvest the loss while planning to “buy back in 31 days,” which defeats the diversification goal entirely.
• Partial harvesting. They sell just enough to capture the loss, not enough to meaningfully reduce concentration.

For someone whose income, bonus, equity, and portfolio are all tied to one employer, a bad quarter doesn’t just hurt the stock price. It can hit all four at once. Tax loss harvesting addresses the tax side of that position, but it doesn’t fix the underlying risk unless the proceeds actually get redeployed, into a broad index fund, a diversified ETF, or another allocation built around something other than your employer.

The real question isn’t whether you triggered a wash sale. It’s whether you’re actually diversifying, or just doing tax paperwork on a concentrated position you’re keeping anyway.

A Quick Example

Say you own 300 shares of your company’s stock with a cost basis of $200 a share. The price drops to $140. You sell 100 shares, locking in a $6,000 loss you’re planning to use to offset other gains.

Eighteen days later, 100 new shares vest as scheduled. That vest, even though you took no action to “buy” anything, is treated as a repurchase. The $6,000 loss is disallowed for this year’s taxes. It gets added to the cost basis of the newly vested shares instead, so the benefit isn’t gone, just delayed until you eventually sell those shares.

It Gets Wider Than Just Your Own Trades

The wash sale rule doesn’t stop at your own brokerage account. It also counts purchases made by your spouse, purchases inside an IRA (where a disallowed loss can be permanently lost), and automatic purchases in taxable accounts like ESPP contributions or dividend reinvestment. The rules around 401(k) company stock are less settled, so it’s worth flagging to your tax advisor if that applies to you.

How to Avoid It

The fix isn’t complicated once you know to look for it:

• Check your vesting calendar before you sell. If a scheduled vest falls within 30 days of a planned loss sale, expect the loss to be disallowed regardless of intent. Knowing that ahead of time means you’re not surprised by it later.
• Watch other automatic purchases too. ESPP contributions and dividend reinvestment can count as replacement shares. 401(k) company stock purchases may also count, though the rules there are less settled, so flag it with your tax advisor.
• Loop in your spouse. If they hold or plan to buy the same company’s stock, that counts too.
• When in doubt, wait it out. If a vest is close, it’s often simpler to wait. Delaying a loss sale by a few weeks to clear the 30-day window is easier than losing the deduction and untangling the basis adjustment later.

Common Questions

Does the wash sale rule apply to gains too?
No. It only applies to losses. If you sell at a gain, there’s nothing to disallow.

Does selling and rebuying in a different account avoid the rule?
No. The rule applies across all your accounts and your spouse’s accounts too, and it clearly applies to IRAs. The treatment of 401(k) company stock purchases is less settled, so check with your tax advisor if that’s relevant to you.

Is the loss gone forever if I trigger a wash sale?
Usually not. It’s added to the cost basis of your replacement shares, so you get the benefit later when you sell those. The exception is if the replacement shares are in an IRA, where the loss can be permanently lost.

How do I know if I’ve triggered one?
Your broker will flag it on Form 1099-B with a “W” code, but by then it’s already happened. Checking your vesting calendar before you sell is the only real way to avoid it in the first place.