Wash Sale Rules & Equity Compensation

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  • #4673
    kdavis1965
    Participant

    Client has restricted stock that is vested. Her basis is such that if she were to sell them she would realize a loss. She also has ISOs that vest monthly. The grant price of these ISOs are much higher than the current market value. Assuming no other stock sales for the year, if she were to sell her restricted stock and realize a loss can she recognize that loss on her return or does the act of those ISOs that vest each month trigger the wash sale rule? My thought is that she would have to actually exercise the ISOs to trigger the wash sale rule. Thanks!

    #4679
    Kaye Thomas
    Moderator

    The rules here are a little murky, but to the best of my knowledge the IRS has never taken the position that vesting of an option triggers the wash sale rule. As you say, exercise of the option would be a trigger.

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