Wash Sale

What it means

A wash sale happens when you sell stock at a loss and buy the same or similar stock shortly before or after that sale. The IRS does not let you claim this loss on your taxes right away. Instead, they pause the loss.

This rule applies if you buy or receive new shares 30 days before or after you sell shares at a loss. Because receiving company stock from an Employee Stock Purchase Plan (ESPP) or the vesting (the time when shares officially become yours) of a Restricted Stock Unit (RSU) counts as buying stock, these events can trigger a wash sale.

A simple example

Imagine you own 10 shares of stock. You sell them for a loss of $100. Two weeks later, your Restricted Stock Unit (RSU) vests and you receive 10 new shares of that same company stock. Because you got new shares within 30 days, the IRS says your $100 loss is 'disallowed' (not allowed). You add that $100 to the cost basis of your new shares. This means your new shares now look more expensive on paper, which helps you when you eventually sell them later.

Why it matters to you

• You cannot use the loss to lower your tax bill in the year the sale happened.
• The loss is not gone forever; it is added to the cost basis of the shares you received.
• Your tax forms, like a 1099-B, will show the wash sale adjustment so you can report it correctly.
• A tax professional can help if you are unsure how to report these transactions.

Common mistakes to avoid

• Forgetting that an RSU vest or an ESPP purchase counts as buying shares.
• Thinking the loss disappears forever instead of moving to the new shares.

Words used on this page

• Basis (Cost Basis): The price you paid for your stock, used to figure out your profit or loss.
• Restricted Stock Unit (RSU): A promise from your company to give you shares once you stay for a certain amount of time.
• Employee Stock Purchase Plan (ESPP): A program that lets you buy company stock at a discount using money from your paycheck.
• Vesting: The moment your company stock officially becomes your own property.