RSU wash sale rule: how a vest can quietly disallow your stock loss

You sell some of your company stock at a loss to harvest the tax deduction — a normal, smart move. Then at filing your broker reports part of that loss as "disallowed," and you cannot use it. The culprit is almost always the wash sale rule colliding with your RSU vesting schedule. It is one of the least-understood traps in equity comp because the "purchase" that triggers it is not a purchase you consciously made — it is your RSUs vesting.

What the wash sale rule actually says

Under IRC §1091, if you sell a security at a loss and acquire "substantially identical" stock within 30 days before or 30 days after that sale, the loss is disallowed.

That is a 61-day window centered on the sale date (30 before + the day of + 30 after).

The purpose is to stop people from selling purely to book a tax loss while staying invested.

Why RSUs spring the trap

Here is the part that catches people.

The wash sale rule is triggered by acquiring substantially identical stock — and the IRS treats the vesting of RSUs as an acquisition of your company shares, even though you never placed a buy order.

Same employer, same ticker, so the shares are "substantially identical" to the ones you sold at a loss.

An ESPP purchase, a dividend reinvestment (DRIP), and an option exercise all count as acquisitions too.

So if you have quarterly or monthly RSU vests — common at large tech companies — there is almost always a vest within 30 days of any given date.

That makes it very easy to accidentally trip the rule when you sell company stock at a loss.

It is partial, not all-or-nothing

The wash sale only disallows the loss proportional to the shares you acquired in the window. The replacement count, not the sale count, is what matters.

So 50 RSUs vesting near a 1,000-share loss sale only disallows the loss on 50 shares — a nuisance, not a catastrophe.

The damage scales with how many shares hit your account in the window.

The sale-to-cover question

A common worry: "my RSUs vest with sell-to-cover — does that sale trigger a wash sale?" Usually not by itself.

At vest, the shares are delivered at fair market value and the sell-to-cover sells some of them at essentially that same price, so there is little or no loss to disallow.

The wash sale risk comes from a separate, deliberate sale of company stock at a loss that happens to land within 30 days of a vest (or ESPP purchase) — not from the routine vest-and-sell-to-cover itself.

How to avoid it

1. 1Before selling company stock at a loss, list every RSU grant's upcoming and recent vest dates, plus any ESPP purchase dates and DRIP dates.
2. 2Make sure no shares are acquired in the 30 days before or after your planned sale date. If a vest is close, wait until the window clears.
3. 3If you cannot avoid the window (e.g., monthly vesting), accept that the proportional loss is deferred into the new shares' basis — you still get it back eventually.
4. 4Turn off dividend reinvestment on company stock if you plan to harvest losses, since DRIP purchases silently trigger the rule.
5. 5Never let the replacement acquisition happen inside an IRA — a wash sale against an IRA purchase permanently destroys the loss (it cannot be added to IRA basis).

How it shows up at filing

Your broker reports wash sales on Form 1099-B and flags the disallowed amount in box 1g ("wash sale loss disallowed"), which flows to Form 8949.

Brokers only track wash sales within the same account, though — if your loss sale is in one brokerage and the vesting/replacement shares are in another (common when RSUs sit at a different custodian than your personal brokerage), the broker will NOT catch it and you are responsible for reporting the wash sale yourself.

This cross-account case is where most people get it wrong.

The takeaway

The wash sale rule turns a routine RSU vest into an accidental "purchase" that can disallow a stock loss you were counting on.

The fix is simple once you know to look: before selling company stock at a loss, check that no RSUs vest, no ESPP shares are bought, and no dividends reinvest within the 30 days before or after.

The disallowed loss is only deferred, not lost — but if you want the deduction this year, keep the sale clear of the window, and watch the cross-account case your broker cannot see.