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My company uses a "Sell to Cover" strategy in order to withhold money for taxes.

That can result in the following situation:

  • I vest 100 shares on Day 1.
  • The company sells 22 of these 100 shares automatically to cover stocks.
  • Since this is a market order, there is a capital loss of $X on the sale.
  • I vest 30 shares on Day 10.

In this scenario, I expect that the capital loss of $X is disallowed based on wash sale rules. However, there are two questions I have with respect to this:

  • When adjusting basis for the wash sale, should I use 22 of the original 100 shares (of which 78 remain in my possession) to add to the cost basis of, or 22 of the later 30 shares?
  • Suppose I did not vest 30 shares on Day 10. Would I still incur a wash sale on the loss, given that the other 78 shares of the original vesting were acquired within 30 days of the capital loss?

I read through IRS Pub 550, but did not find an example where the original lot was sold in its entirety.

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When adjusting basis for the wash sale, should I use 22 of the original 100 shares (of which 78 remain in my possession) to add to the cost basis of, or 22 of the later 30 shares?

Either, doesn't matter

Suppose I did not vest 30 shares on Day 10. Would I still incur a wash sale on the loss, given that the other 78 shares of the original vesting were acquired within 30 days of the capital loss?

Yes, because in the scenario you're describing you acquired the shares and sold the shares in two separate transactions.


However this scenario is a bit weird, my experience is that companies withhold the shares for tax withholding at the same value as the vest value. Basically, the withheld shares are never released to my account at all. This was my experience in all the companies I had RSUs at. The end result is the same, but requires much less paperwork than your scenario.

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  • My company used to use Net Withholding which results in shares being withheld at the same value as vest. I think that's what you're describing as what you've experienced. Two years ago, they switched to Sell-To-Cover, which presumably makes their accounting easier while making employee accounting harder.
    – merlin2011
    Apr 2, 2023 at 18:19
  • That sucks... RSUs can add all kinds of complications with regards to wash sales if vests are monthly, this just adds even more...
    – littleadv
    Apr 2, 2023 at 21:03
  • Yeah, I'm not fond of our new CFO's policies around RSU handling. :(
    – merlin2011
    Apr 3, 2023 at 5:50

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