The wash sale rule and RSUs collide more often than most employees realize: if you sell vested RSU shares at a loss and acquire the same company’s stock within the 30 days before or the 30 days after that sale, the IRS disallows the loss under 26 U.S.C. § 1091.1Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities For RSU holders the trap is nearly automatic, because scheduled vestings, ESPP purchases, 401(k) contributions to company stock, and dividend reinvestments all count as replacement acquisitions. When those replacement shares land inside a retirement account, the disallowed loss doesn’t just get deferred. It’s gone.
The 61-Day Window and Your RSU Basis
The rule covers a 61-day window: the 30 days before the sale, the sale date itself, and the 30 days after. Contracts and options to acquire the stock count too, not just outright purchases.1Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
To know whether you have a loss in the first place, you need your basis. RSUs are taxed as ordinary income when the shares are delivered, and the fair market value on the delivery date becomes both the amount added to your W-2 and your cost basis in those shares.2Charles Schwab. Restricted Stock and Performance Stock Taxes: A Guide If the stock later drops and you sell below that vesting-day price, you have a loss — and a wash sale exposure.
For RSU holders, the “substantially identical” question is simple: your company’s common stock is always substantially identical to more of your company’s common stock, no matter which account holds it or how it was acquired.
Why RSU Holders Trigger Wash Sales Without Trying
The rule was written to stop investors from selling for a tax loss and buying back in immediately. RSU recipients aren’t doing that, but the mechanics look identical from the IRS’s side. A four-year vesting schedule with quarterly releases delivers new shares eight to sixteen times a year, and each delivery is an acquisition.
Scheduled RSU Vests
Quarterly vesting puts a new acquisition roughly every 90 days on your calendar. Sell shares at a loss inside the 61-day window around any vest date, and that vest is your replacement acquisition. With monthly vesting, avoiding the rule is almost impossible.
ESPP Purchases
Employee Stock Purchase Plans buy company shares on your behalf at the end of each offering period. A loss sale within 30 days before or after that purchase date is a wash sale, even though the ESPP and your RSU brokerage account often live in different places.
401(k) Contributions to Company Stock
If your plan offers company stock as an investment or your employer matches in company stock, every payroll-period purchase can trigger a wash sale against a loss you take in your brokerage account.
Dividend Reinvestment
A DRIP quietly reinvests dividends into more company shares each quarter. A $50 DRIP purchase can disallow a much larger loss.
Spousal Purchases
The rule reaches across households. Purchases by your spouse during the 61-day window count as your replacement acquisitions.3Internal Revenue Service. Publication 550 – Investment Income and Expenses Two spouses at the same employer, each with RSUs, can disallow each other’s losses.
The Retirement Account Trap
Normally a disallowed wash sale loss is added to the basis of the replacement shares, so you recover it when you eventually sell them. The holding period of the original shares also carries over to the replacements.3Internal Revenue Service. Publication 550 – Investment Income and Expenses4Office of the Law Revision Counsel. 26 US Code 1223 – Holding Period of Property Loss deferred, not destroyed.
That mechanism breaks when the replacement shares are acquired inside an IRA or Roth IRA. Revenue Ruling 2008-5 confirms that the basis adjustment does not apply in that case, and Publication 550 states the same exception explicitly.5Internal Revenue Service. Rev. Rul. 2008-5 – Losses From Wash Sales of Stock or Securities3Internal Revenue Service. Publication 550 – Investment Income and Expenses Since cost basis inside an IRA isn’t tracked share-by-share for taxable purposes, there is no place for the disallowed amount to live. A $5,000 loss disallowed because your IRA bought the same stock within 30 days is permanently destroyed.
The IRS hasn’t issued equivalent guidance for 401(k) plans, but the same practical problem exists: there’s no standard mechanism to adjust the basis of shares held inside a 401(k). Many tax professionals treat 401(k) replacement purchases the same way. If your 401(k) is buying company stock through regular contributions, assume any loss disallowed by those purchases will not come back to you.
How Much of the Loss Gets Disallowed
If you acquire at least as many replacement shares as you sold, the whole loss is disallowed. If you acquire fewer, only a proportional piece is.1Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
An example. You sell 100 RSU shares at $90 each; your basis was $100 per share from the vest date, so the sale produces a $1,000 loss. Two weeks later your ESPP buys 50 shares at $85. Because half the sold shares were replaced, half the loss — $500 — is disallowed. The other $500 stays deductible. The disallowed $500 is added to the basis of the 50 replacement shares, moving their basis from $4,250 to $4,750.6IRS Link and Learn Taxes. Case Study 1 – Wash Sales Sell those 50 shares later at $85 apiece and you recover the deferred $500 as a loss on that sale.
The December-January Trap
The 61-day window ignores the calendar year. A loss sale on December 15 is disallowed if replacement shares are acquired on January 4, even though the triggering purchase happens in a different tax year.
For anyone with quarterly vesting, a January 1 vest reaches back to December 2. Any loss sale after that date is caught. The reverse also applies: a December 10 ESPP purchase extends forward to January 9, so a loss sale anywhere from November 10 through January 9 is disallowed by that single purchase. Check upcoming vest and ESPP dates before harvesting losses in December.
How to Avoid Triggering the Rule
You can’t stop RSUs from vesting, but you can control the timing of loss sales and the enrollment choices that create extra acquisition events.
- Map every date you expect to receive company stock: vest dates, ESPP purchase dates, 401(k) contribution dates, dividend payment dates. Any loss sale needs to sit outside the 61-day window around each one.
- Turn off dividend reinvestment at least 31 days before a planned loss sale. A single small DRIP purchase can disallow the entire loss.
- If your 401(k) is invested in company stock, redirect contributions to a different fund at least 31 days before selling RSU shares at a loss, and wait until the 30-day post-sale window closes before switching back.
- Coordinate with your spouse. Their RSU vests, ESPP purchases, and open-market buys count as your acquisitions.
- The simplest option: sell at a loss and acquire no company stock in any account for 31 calendar days. The trade-off is price risk while you wait.
Reporting the Wash Sale
Wash sales go on Form 8949, with totals carried to Schedule D.7Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Your broker’s Form 1099-B shows proceeds and basis and may flag the wash sale, but brokers only see transactions in their own accounts. Replacement purchases in a different brokerage, in your 401(k), or in your spouse’s account won’t appear on the 1099-B. You have to catch those yourself.
On Form 8949, enter the proceeds and basis normally, put code “W” in the adjustment code column, and enter the nondeductible loss as a positive number in the adjustment column. That zeroes out or reduces the loss on that line.8Internal Revenue Service. Instructions for Form 8949
Then keep records for the replacement shares. Their basis includes the disallowed amount, and when you eventually sell them — possibly years later — you’ll need that adjusted figure to avoid overstating your gain or forfeiting the deferred loss. A spreadsheet with the replacement purchase date, original basis, added wash sale amount, and adjusted basis is enough.
Penalties for Getting It Wrong
Claiming a loss that should have been disallowed understates your tax. If the IRS catches it, you owe the tax plus interest at 7% per year, compounded daily, on the underpayment.9Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026 An accuracy-related penalty of 20% of the underpayment applies when the IRS finds negligence or disregard of the rules, and the substantial understatement threshold for individuals kicks in at the greater of 10% of the correct tax or $5,000.10Internal Revenue Service. Accuracy-Related Penalty
Overriding a wash sale adjustment shown on your 1099-B without a valid reason looks like disregard of the rules rather than an honest error. The more common quiet cost is the opposite: a wash sale your broker never saw, often involving a retirement account, that you claim in good faith. If audited, the recalculation affects the basis of replacement shares and can cascade through several tax years.