Selling RSUs at a loss produces a capital loss equal to the difference between the share price on your vesting date and the price you sold at. That loss offsets capital gains from other investments and, if losses exceed gains, up to $3,000 of ordinary income per year, with any remainder carrying forward indefinitely. Two things decide whether you actually capture the benefit: fixing the cost basis your broker reports, and avoiding the wash sale rule when new company shares land in your account near the sale date.
How the Loss Is Calculated
Your cost basis for RSU shares is the fair market value your employer assigned to the stock on the day it vested. That same amount was already added to your W-2 as ordinary income and taxed through payroll withholding. From the vesting date forward, the shares behave like any other stock you own: sell above basis and you have a capital gain, sell below it and you have a capital loss.
Say 100 shares vest at $50, giving you a $5,000 cost basis and $5,000 of W-2 income. Six months later you sell all 100 for $40 a share, receiving $4,000. Your capital loss is $1,000. The income tax you paid at vesting does not go away and is not refunded. The $1,000 is a separate deduction that reduces investment gains or ordinary income under the rules below.
Short-Term or Long-Term
The holding period runs from the vesting date. Sell within one year and the loss is short-term; hold longer than a year and it is long-term.1Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
On your return, short-term losses first cancel short-term gains (taxed at ordinary rates) and long-term losses first cancel long-term gains (taxed at 0%, 15%, or 20%). Anything left crosses over to offset the other category.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses If you have a choice about timing, the character of your other gains for the year affects which side of the one-year mark helps you more.
Fix the Cost Basis on Your 1099-B
This is where RSU sellers most often overpay. Brokerages frequently report a cost basis of $0 or leave the basis box blank on Form 1099-B for RSU shares, because IRS rules do not require brokers to track the compensation element that was already taxed through payroll. If you enter that $0 on your return, the IRS treats the entire sale amount as a capital gain, taxing you a second time on income your W-2 already covered.
The correction goes on Form 8949. Enter the incorrect basis from the 1099-B in column (e), use adjustment Code B in column (f), and put the difference between the reported basis and your true basis (the fair market value at vesting) as a negative adjustment in column (g).3Internal Revenue Service. Instructions for Form 8949 If the broker did not report the basis to the IRS at all, put the correct basis directly in column (e) and leave column (g) at zero.
Your W-2 or the supplemental stock plan statement from your employer’s plan administrator shows the vesting-day fair market value for each lot. If shares vested on multiple dates, each lot has its own basis tied to that day’s price. Keep those statements with your brokerage records.
Reporting the Sale
Every RSU sale flows through Form 8949 to Schedule D and then to Form 1040. For each transaction you need the acquisition date (the vesting date), the sale date, the proceeds, and the adjusted basis.4Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Short-term sales go on Part I of Form 8949, long-term on Part II. Schedule D nets the totals together, and a net loss carries to your 1040 to reduce taxable income.
One boundary worth noting: the “sell-to-cover” shares your employer liquidates on the vesting day to satisfy withholding will show up on your 1099-B, but because they sold at essentially the same price as the basis, they produce little or no gain or loss. The shares you kept are where a real capital loss develops.
The Wash Sale Trap for RSU Holders
The wash sale rule disallows a capital loss if you acquire substantially identical stock within 30 days before or 30 days after the sale, a 61-day window in total. The disallowed loss is not lost. It gets added to the basis of the replacement shares and is recovered when you sell those.5Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
For RSU holders, the biggest trigger is your own vesting schedule. If another tranche of company stock vests within 30 days of your loss sale, the IRS treats that vesting as an acquisition of substantially identical stock, and the loss is deferred into the basis of the newly vested shares. Two automated triggers cause the same problem:
- A dividend reinvestment plan buying more of the same company’s stock inside the 61-day window.
- An Employee Stock Purchase Plan purchase of your employer’s stock inside the window.
Before you sell RSUs at a loss, look ahead 30 days and back 30 days on your vesting calendar, DRIP activity, and ESPP purchase dates. If any of those will drop new company shares in your account, either change the timing or accept that the loss will roll into the new shares’ basis rather than hit this year’s return.
What the Loss Actually Offsets
The first use of the loss is against capital gains from other investments in the same tax year. Sell one stock at a $5,000 gain and RSUs at a $2,000 loss, and your net taxable gain is $3,000. Schedule D handles the netting, applying same-character offsets first and crossing over afterward.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
When total capital losses exceed total capital gains, you can deduct up to $3,000 of the excess against ordinary income such as wages. Married filing separately is limited to $1,500.6Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses Any loss above the annual cap carries forward with no expiration. You can keep applying $3,000 a year against ordinary income, or use a larger chunk in a year when you have significant capital gains.2Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Higher earners get a second benefit. Capital losses reduce net investment income for purposes of the 3.8% Net Investment Income Tax, which applies once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for joint filers.7Internal Revenue Service. Net Investment Income Tax A loss can shrink or eliminate that surtax for the year.
Penalty Risk for Getting the Basis Wrong
Errors in either direction are possible, but the IRS only penalizes underpayment. Failing to correct a $0 basis makes you overpay; there is no penalty for that, only lost money. Overstating basis to claim a larger loss than you are entitled to can trigger an accuracy-related penalty of 20% of the underpaid tax. The penalty applies when the IRS finds negligence or a substantial understatement, meaning one exceeding the greater of 10% of the correct tax or $5,000, with interest running from the return’s original due date.8Internal Revenue Service. Accuracy-Related Penalty Keep the vesting statements, W-2s, supplemental stock plan documents, and 1099-Bs together; those records show how you arrived at the basis if the adjustment is ever questioned.