Kestrel Bay Retirement Advisors uses tax-loss harvesting to sell stock or fund lots that sit below their cost, so the realized losses cancel gains from RSU and ESPP sales you already plan. Losses offset realized capital gains dollar for dollar, and a net loss of up to $3,000 a year ($1,500 if married filing separately) can reduce ordinary income. One trap catches tech employees constantly: buying the same stock within 30 days before or after the sale disallows the loss, and an RSU vest counts as a buying event.
Most people find this service after they finally decide to sell. Say you've held vested shares for years, the stock has slid from its peak, and your broker's trade screen shows a six-figure gain you didn't expect. Or you notice that shares vested last spring are under water while shares from years ago are far above cost. Both facts sit in the same account, and the order you sell in decides the tax bill.
What does tax-loss harvesting cover for someone paid in RSUs?
Start with the numbers. Hypothetical: Leah, 38, is a single senior software engineer at a public cloud company. She rents, and she has never sold a vested RSU. She wants to sell $300,000 of employer stock at $200 a share, which is 1,500 shares. Her oldest lots carry an $80 basis, and her recent lots vested at $250. Sold one way, the sale reports $180,000 of gain. Sold another way, it reports $95,000. The only difference is which lots she picks.
Here is the arithmetic. Selling 1,500 old shares gives 1,500 × $120 = $180,000 of gain. Selling 500 recent shares at a $50 loss each gives a $25,000 loss, and 1,000 old shares give 1,000 × $120 = $120,000 of gain, so the net is $95,000. Now add a quarterly vest. If 400 new shares vest 20 days after the sale, 400 × $50 = $20,000 of the loss is disallowed and moves into the new shares' basis. Only $5,000 of loss counts, and her net gain becomes $115,000. The table shows all three outcomes side by side, so look at the last column.
Each RSU vest is its own tax lot, with a basis equal to the share price on the vest date. After a price drop, the recent high-priced vests show losses while older lots still show large gains. Harvesting means selling the loss lots on purpose, alongside the gain lots. Someone selling a concentrated position over several years, with recent vests above today's price, usually needs it most. Since Leah has never sold a vested RSU, every lot she owns is a candidate. Losses in taxable index funds or ETFs count too.
The boundary is firm. This works only in a taxable brokerage account. Leah's $180,000 401(k) has nothing to harvest, because gains and losses inside it are never reported.
| Sale plan | Shares sold | Net gain reported | Loss moved into new basis |
|---|---|---|---|
| Oldest lots only | 1,500 | $180,000 | $0 |
| Mixed lots, sold between vests | 1,500 | $95,000 | $0 |
| Mixed lots, sold 20 days before a vest | 1,500 | $115,000 | $20,000 |
Where tax-loss harvesting stops helping
Harvesting defers tax. It doesn't erase it. The $85,000 Leah leaves off this year's return ($180,000 minus $95,000) stays inside the $80-basis lots she keeps. Yes, that gain shows up later, unless the shares are donated or held until death. We think deferral is still worth having, since you can choose the year and the rate, but nobody should call it free.
The ordinary-income offset is slow. A $30,000 net loss with no gains to absorb it takes ten years to use at $3,000 a year. A harvested loss earns its value by canceling gains, so harvesting matters most in the years you sell. Leah's plan makes sense because she's about to sell; it would make little sense if she planned to hold for a decade.
Quarterly vests shrink the window. With vests 90 days apart, a loss sale is clean only from roughly day 31 to day 59 after a vest, so no vest falls within a month of the sale in either direction. ESPP purchases and dividend reinvestment in the same stock narrow it further. Check the dates before every loss sale. If a vest, ESPP purchase or reinvestment falls inside that 30-day span, move the sale, or expect the loss to be disallowed on as many shares as you acquired.
We'd skip harvesting a few hundred dollars of loss in a fund if the replacement tracks a different index. A small tax saving isn't worth holding something you didn't choose. Investing involves risk, including loss of principal, and a harvested position can keep falling after you sell.
How do we review harvesting as the year goes on?
We review it after each quarterly vest and again in December. After each vest, we list every employer-stock lot trading under its basis and mark the next clean sale window on the calendar. Then we update a running tally of realized gains, realized losses and the carryforward from last year's Schedule D. Before Kestrel Bay Retirement Advisors suggests any sale, it shows you what the year's gain report will look like afterward. That's the tax-first habit in practice: the tax result comes before the trade, not after.
December needs a second look. A loss sale on December 20 is caught by a vest or ESPP purchase as late as January 19, so we check January dates before any year-end loss trade. Then the 1099-B arrives early in the year. We compare its wash-sale disallowed column (box 1g) against our own log, and mismatches go to your tax preparer with an explanation.
What reports and files do you get?
Lot instructions have to reach the broker by the trade's settlement. Otherwise most brokers default to first in, first out, which sells the oldest and lowest-basis shares. That default is the costliest slip we see: on Leah's $300,000 sale, it reports $180,000 of gain instead of $95,000.
We don't file your return. The year-end summary is written so a CPA can enter it on Form 8949 without re-sorting your trades.
- A lot map of your employer stock, showing the vest date, the basis per share and the current gain or loss.
- A vest and ESPP purchase calendar, with the clean loss-sale windows marked.
- Trade instructions that name the exact lots to sell, using specific identification.
- A year-end summary of realized gains and losses, plus the carryforward figure for your tax preparer.
- A one-page note after each review: what was sold, what was deliberately left alone, and why.
How harvesting fits equity compensation, concentrated stock and Roth conversion planning
Equity compensation planning sets the vest and purchase calendar, and harvesting reads that calendar to find its sale windows. With concentrated stock positions, harvested losses let a multi-year sale plan move more shares in a year while reporting the same gain; Leah moves $300,000 out while reporting $95,000 instead of $180,000. For Roth conversion planning, losses beyond your gains offset only $3,000 of a conversion's ordinary income, so Kestrel Bay Retirement Advisors doesn't plan conversions around harvested losses.
Starting with Kestrel Bay Retirement Advisors: what to send before the first call
Reach us through the request form on kestrelbayretirement.com, since no phone number is published. Meetings run on video or the phone, whatever state you're in. The client minimum is $400K in investable assets, and we send our fee terms before any work begins. We don't quote fee amounts on this page.
Gather three documents first: your broker's lot-level gain and loss export, the vest schedule from your equity portal, and Form 8949 and Schedule D from last year's return. With those in hand, the first review can show which lots are under water today.
Your questions about tax-loss harvesting, answered
Does tax-loss harvesting work inside a 401(k) or IRA?
No. Gains and losses inside a 401(k) or IRA aren't reported on your return, so a loss there can't offset anything. Harvesting applies only to taxable brokerage accounts. Leah's $180,000 401(k) in the example has nothing to harvest, though her taxable employer-stock lots might.
What happens to capital losses I can't use this year?
They carry forward to later years with no expiration. Each year they first cancel capital gains, then up to $3,000 of ordinary income. A $30,000 net loss with no gains would take ten years at that pace, so a carryforward is worth most in a year you sell.
Can I buy an S&P 500 index fund right after selling my company stock at a loss?
Usually yes. The 30-day rule covers the same or substantially identical securities, and a broad index fund isn't the same as one company's shares. The risk is buying more of the company itself, and an RSU vest or ESPP purchase counts as that. Check your dates first.
How much can tax-loss harvesting save in a year?
It depends on your gains and bracket. In the hypothetical example, harvesting cut reported gain from $180,000 to $95,000, an $85,000 difference deferred. A wash sale cut that to $65,000. The tax saved is that amount times your rate, and it's a deferral, not a permanent saving.
This information is general education only and does not account for your specific circumstances, goals or finances. It is not investment, tax or legal advice. Investing involves risk, including the possible loss of principal. Before making any financial decision, consult a qualified professional about your own situation.