RSUs and the Wash Sale Rule: Why Your 1099 Might Be Wrong
You can't always trust the gain or loss your brokerage reports on Form 1099-B. That's especially true if you work for a large public company, receive restricted stock units (RSUs), and sold some of that company's stock at a loss during the year.
The issue is the wash sale rule. Some brokerages treat a routine RSU vest as if you had bought more shares, and they disallow the loss you were expecting. There's a strong argument that a vest isn't a purchase at all, and that the loss should stand. Here's how the rule works, why RSUs complicate it, and how we handle it on client returns.
Why Your Brokerage 1099 Isn't the Final Word
This has come up twice in our practice recently, which is what prompted this article. In both cases the pattern was the same: the client sold company stock at a loss, an RSU batch vested within a month of the sale, and the 1099-B showed part or all of the loss as a disallowed wash sale.
Financial institutions aren't consistent here. Some apply wash sale treatment to RSU vests and some don't. A lot of tax preparers won't catch it either, especially when the numbers are small. Usually the person who notices is the taxpayer, because they were counting on a loss that never showed up.
How the Wash Sale Rule Works
A wash sale happens when you sell stock at a loss and acquire the same (or substantially identical) stock within a 61-day window: the 30 days before the sale, the day of the sale, and the 30 days after.
The logic is simple. If you sell at a loss and buy right back in, you never really gave up the investment. From the IRS's point of view, the only reason for the trade was to generate a deduction, so the loss doesn't count yet.
It's worth being precise about what "doesn't count" means. The loss isn't permanently denied. It's suspended and added to the basis of the replacement shares, and the holding period of the old shares carries over. You get the benefit later, when you sell the replacement shares in a transaction that isn't itself a wash sale.
In an ordinary wash sale, none of this should come as a surprise. You know you placed a buy order. RSUs are different.
Where RSUs Make It Tricky
Say you work for Cisco. Your compensation includes RSUs that vest quarterly, so every three months a new batch of Cisco shares lands in your brokerage account whether you want it or not. You didn't place an order. You're receiving stock the company agreed to give you for your work, and its value shows up as wages on your W-2.
Now suppose you also hold older Cisco shares that have dropped in value, and you sell some of them to realize a $10,000 loss, or a $100,000 one. Wash sales probably aren't on your mind, because you didn't buy anything. But if a quarterly vest falls within 30 days of that sale, your brokerage may flag it as a wash sale and disallow some or all of the loss on your 1099-B.
That's how some brokerages handle it. The question is whether the rule actually requires it.
What the Regulation Actually Says
The wash sale rule lives in Internal Revenue Code Section 1091, and the governing regulation is Treasury Regulation §1.1091-1(a). The key language says the rule applies when the taxpayer:
has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities.
Notice what that sentence doesn't say. It doesn't apply to stock you acquired in any way at all. It applies to stock acquired by purchase, or by a fully taxable exchange. That parenthetical carries the whole argument.
It also refers to a "contract or option so to acquire." A conservative reader could point to your RSU grant agreement as that kind of contract. It's a fair point to raise, and it's part of why reasonable advisors land in different places on this question.
Two Readings of the Same Rule
You can look at this both ways, and it's worth understanding the conservative position first.
The conservative argument is that you did acquire the stock, through an exchange. You gave your services and received shares in return. That's a taxable transaction: you recognized income equal to the value of the shares, so gain or loss was recognized by law. On that reading, the vest triggers the wash sale rule.
Our approach is the opposite. When your RSUs vest, you've acquired stock, but you haven't purchased it. If the regulation simply said "acquired," it would be very hard to argue that an RSU vest falls outside the rule. It says acquired by purchase, though, and receiving shares as compensation isn't a purchase.
The purpose of the rule supports that reading. The wash sale rule targets an intentional move: selling at a loss to claim a deduction without actually changing your investment position. There's intent behind it. With an RSU vest, that intent doesn't exist. The shares arrive on a schedule set by your employer, not by any trading decision you made. So our general position is that an RSU vest is an acquisition, not a purchase, and it doesn't trigger a wash sale.
How We Handle It on the Return
When a brokerage has treated an RSU vest as a wash sale, we adjust for it on the tax return so the client gets the loss in the year they sold. The correction goes on Form 8949, where the reported sale is listed along with an explanation of why the brokerage's wash sale adjustment doesn't apply.
There's one follow-through detail. If the brokerage moved the disallowed loss into the basis of the vested RSU shares, that basis also needs correcting in your records. Otherwise the same loss could show up again when you later sell those shares.
This is a position, not a mechanical fix, so it should be applied based on the facts. The size of the loss, how close the vest was to the sale, and how the rest of your trading activity looks during the window all matter.
When This Matters Most
Calling it a wash sale doesn't make the loss disappear. It shifts the loss to a later year. For a small loss in an ordinary year, that difference may not mean much.
But plenty of people sell at a loss for a reason. Maybe it's a high-income year with a large bonus, a big vest, or a liquidity event, and that loss was part of the plan to offset gains. In that situation, deferring the loss to some future year can cost real money now.
This also comes up for U.S. citizens working abroad for a U.S.-based multinational. RSUs from a U.S. parent company keep vesting during an international assignment, and the same 1099-B issue follows you overseas, often on top of an already complicated return.
Frequently Asked Questions
Does an RSU vest count as buying stock for wash sale purposes?
The regulation applies to stock "acquired by purchase or by an exchange." Our position is that receiving RSUs as compensation is an acquisition but not a purchase, so it shouldn't trigger the rule. A more conservative view treats the vest as an exchange of services for stock, and some brokerages report it that way.
If my loss is treated as a wash sale, is it gone for good?
No. A wash sale suspends the loss by adding it to the basis of the replacement shares. You recognize it later, when you sell those shares in a transaction that isn't a wash sale.
Why did my brokerage report a wash sale when I didn't buy anything?
Some brokerages treat RSU vests as acquisitions that trigger the wash sale rule, and others don't. If a vest landed within 30 days before or after your loss sale, that's likely the cause.
Can I fix a wash sale my brokerage reported?
Yes, when the facts support it. The adjustment is made on Form 8949, and the basis of the affected RSU shares should be corrected in your records so the loss isn't counted twice.
Get a Second Look Before You File
If you sold company stock at a loss and your 1099-B tells a different story than you expected, it's worth a closer look before you file. RSU wash sales come up more often than most people realize, and they're easy to miss.