Tax Loss Harvesting and RSUs

Question

I routinely sell my RSUs as soon as they vest, but this previous vesting period -- I did not. Sadly, the stock declined ~25 percent since that time.

Some key notes.

• This would be a short-term sale for RSUs that vested this a few months back.

• I still have stock in the company through ESPP shares, that I do not plan to sell.

• I will still have more RSUs, but the next vesting period is several months away.

• I was thinking of buying a similar stock (i.e. same sector/industry, but different company), but it's my understanding that does not qualify as "similar security" for tax purposes...?

After all of my total losses/gains are calculated for the year (for sold stock), I think this would come out to approximately $20K-30K in losses.

My questions.

1. Is there any reason not to take advantage of tax loss harvesting?

2. Is there any issues with tax loss harvesting when it comes to RSUs?

3. I believe it's only possibly to use $3000 in losses for each tax year. Is it possible to carry this forward for the next 8-10 years?

Thanks in advance.

Answer 1

Is there any issues with tax loss harvesting when it comes to RSUs?

Nope, once you get the RSUs it is just a stock that is treated like any other.

I believe it's only possibly to use $3000 in losses for each tax year. Is it possible to carry this forward for the next 8-10 years?

Yes, you can carry it forward. If you realize a capital gain in future years, it will offset that as well.

Is there any reason not to take advantage of tax loss harvesting?

The benefit of TLH is that you can delay paying taxes on capital gains (especially short term capital gains that have a high tax rate) so you are in essence getting an interest-free loan from the government. For example, say you have a $30k loss on the RSUs and you immediately applied that loss against a capital gains of $30k. You avoid paying taxes on that capital gain for this tax year. You have deferred that capital gain by reducing the cost basis of what you purchase to replace the RSUs. That means when you eventually sell the RSU replacement stocks, your capital gains will be higher than if you did not do TLH.

In your situation, you are only offsetting $3k of income per year, so you are getting an interest-free loan of $3k each year until you have exhausted the harvested amount. So you are still getting benefit, but not as much benefit as if you had capital gains you could offset as described above.

On the other hand marginal tax rates are high, so it is nice benefit percentage wise even if the amount is relatively low each year. If your marginal tax rate is 33%, then you save $1000 on your taxes each year.

Opinions will vary, but I suggest not doing the TLH to simplify your taxes a bit. You or your accountant could forget to apply the TLH in a few years and then you'll have lost the benefit. You also need to be careful to avoid the 61 day window for a wash sale, which is more difficult if the stock has dividends.