RSU Wash Sale Rules in 2026: How Vested Shares Can Disallow a Loss

If you receive RSUs and also sell company stock, the wash sale rule is one of the easiest tax traps to miss.

It matters because capital losses can offset capital gains, and if losses exceed gains, net capital loss can still offset ordinary income up to annual limits, with the rest carried forward. That makes tax-loss harvesting valuable, but only if the loss is actually allowed.

The problem for equity compensation recipients is timing. RSUs often vest on a fixed schedule. If you sell company stock at a loss and then receive more shares through vesting within 30 days before or after that sale, some or all of the loss can be disallowed under the wash sale rule.

What is the wash sale rule?

IRS Publication 550 says a wash sale happens when you sell stock or securities at a loss and, within 30 days before or after the sale, you buy substantially identical stock, acquire substantially identical stock in a fully taxable trade, or acquire a contract or option to buy substantially identical stock. That creates the familiar 61-day window around the loss sale.

Publication 550 also explains that if the number of replacement shares is smaller or larger than the number of shares sold at a loss, the wash sale applies on a share-by-share matching basis. In other words, you do not always lose the entire loss deduction. Sometimes only part of the loss is deferred.

Why RSUs make this tricky

RSUs are generally taxed as ordinary wage income when they vest and the shares are delivered. After that, any later price movement becomes capital gain or capital loss when the shares are sold. That means employees often end up holding employer stock that was already taxed at vest, and then later try to harvest a capital loss if the stock falls.

Publication 550 does not have a dedicated section for RSUs by name, but it does include an employee stock-compensation example involving bonus stock. Practitioners generally apply the same wash sale logic to taxable RSU vesting because vesting results in the acquisition of substantially identical employer stock inside the wash sale window.

A simple RSU wash sale example

Assume you already own 500 shares of your employer's stock with a $100 basis per share. In June 2026, the stock is trading at $70, and you sell all 500 shares to harvest a $30 per-share loss, or $15,000 total.

Then, 14 days later, 200 RSU shares vest and are delivered. Because you sold stock at a loss and acquired substantially identical stock within 30 days after the sale, the wash sale rule applies to the matching shares.

How the basis adjusts

So if those 200 RSU shares vested at $72 per share and that $72 was taxed as wages, their starting basis would generally be $72 per share. After adding the $30 per-share disallowed loss, the adjusted basis for those matched shares becomes $102 per share.

Common wash sale situations for RSU holders

1. You sell older company shares at a loss, then your next RSU tranche vests

This is the classic case. You think you harvested a loss, but the upcoming RSU vest replaces part of the position and disallows part of the deduction.

2. You have monthly or quarterly vesting

Frequent vesting schedules increase wash sale risk because employer stock is being reacquired on a schedule whether you are focused on the wash sale window or not. This is especially easy to miss when someone sells older lots for tax-loss harvesting near year-end.

3. You also have ESPP purchases, option exercises, or reinvestment activity

Publication 550 makes clear that wash sales can be triggered not only by direct purchases, but also by acquiring substantially identical stock in a fully taxable trade or by acquiring a contract or option to buy substantially identical stock. In practice, that means option exercises, ESPP purchases, and automatic reinvestment activity can all complicate a loss sale. Even small acquisitions can matter on a proportional basis.

4. You rely too much on Form 1099-B

Publication 550 says Form 1099-B will report wash sale loss disallowed only in a narrower fact pattern, including where the replacement shares were bought in the same account and had the same CUSIP number. It also says you still cannot deduct a wash sale loss just because it is not reported there. That is important for equity comp because employer stock often sits across multiple accounts or systems.

What about sell-to-cover?

This is an important nuance for RSU holders. If an RSU vest triggers a wash sale and some of the newly vested shares are immediately sold to cover withholding taxes, the deferred loss may be recognized sooner to the extent the wash sale basis adjustment attaches to the specific replacement shares that are sold in that sell-to-cover transaction.

The key point is that the basis adjustment follows the replacement shares. So a same-day sale of some replacement shares can soften the wash sale impact, but not always in the exact way people expect.

What does not create a wash sale by itself?

Not every RSU event causes one. If your RSUs vest and you immediately sell the newly delivered shares at essentially the same price, there may be little or no capital loss to begin with because your basis generally starts with the value already taxed to you at vest. A wash sale only matters when you actually have a loss sale and then reacquire substantially identical stock inside the window.

Also, the wash sale rule is not about the W-2 income at vest. That wage income is still wage income. The issue is whether your later capital loss on a stock sale is currently deductible.

Practical ways to reduce wash sale risk

The bottom line

For most employees, the wash sale issue is not that RSUs are taxed twice. They are not. The issue is that once you sell company stock at a loss, your next RSU vest may quietly replace part of that position and defer some or all of the loss you expected to claim.

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