Capital Gains on Restricted Stock Units (RSUs)

When you receive capital gains on restricted stock units, the tax treatment splits into two parts: vesting creates ordinary income, and only the appreciation after vesting is a capital gain. The size of your capital gain depends entirely on how much the stock has risen (or fallen) since the vesting date—not since the grant date.

The two-layer tax structure

An RSU grant is a promise: “If you stay and hit milestones, you will own shares.” You have no shares, no voting rights, and no claim to dividends until vesting occurs.

On the vesting date—say, January 15, 2025—your employer deposits shares into your brokerage account. The company immediately owes you ordinary income on the fair market value of those shares on that day.

If the stock price is $100 on vesting, and you vest 100 shares, your ordinary income is $10,000. Your employer withholds roughly 25–37% in federal tax (depending on your bracket and state), and you owe the rest on April 15.

Critical: $100 per share is now your cost basis for capital gains purposes. The IRS does not care what the stock cost on the grant date or what the company said the RSU “value” was at grant. Vesting date fair market value is the basis, period.

The post-vesting gain or loss

After vesting, you own the shares outright. You can hold them or sell them immediately.

Scenario A: You sell immediately (same day or next day).

• Vesting price: $100
• Sale price: $100
• Capital gain: $0
• You owe tax only on the ordinary income ($10,000)

Scenario B: You hold and the stock rises.

• Vesting price: $100 (cost basis)
• Months pass
• Sale price: $150
• Capital gain: $50 × 100 = $5,000
• If you held the shares for more than one year since vesting, the gain is long-term capital gain (taxed at preferential rates: 0%, 15%, or 20%, depending on income).
• If you held less than one year, it is a short-term capital gain (taxed as ordinary income).

Scenario C: You hold and the stock falls.

• Vesting price: $100 (cost basis)
• Sale price: $60
• Capital loss: $40 × 100 = $4,000
• You can use the loss to offset other capital gains, and up to $3,000 of ordinary income per year; excess losses carry forward indefinitely.

Why the vesting date matters (not the grant date)

Many employees conflate the grant date with the vesting date because the grant is when they first hear about the RSUs. But the tax code is clear: ordinary income is earned on the vesting date, when the company transfers actual property (shares or cash value) to you.

The grant date is a contractual marker, not a tax event. If you were granted 100 RSUs on January 1, 2024, but they don’t vest until January 15, 2025, you owe no tax in 2024. You owe ordinary income tax in 2025 (the year of vesting). Your basis is the January 15, 2025 price, even if the stock has doubled or halved since the grant date.

This asymmetry can be frustrating. You may have watched the stock rise 50% from grant to vesting and feel you should be “keeping” some of that gain, but the tax law treats the entire vesting-date value as compensation, not as a gain on an investment you owned.

Net-settled RSUs and withholding

Many RSUs are “net-settled,” meaning the company automatically withholds shares to cover your ordinary income tax obligation.

Example:

• You vest 100 RSUs at $100/share = $10,000 ordinary income
• Employer withholds roughly 35% = ~35 shares (at $100 each = $3,500)
• You receive ~65 shares into your brokerage account

Your cost basis is still $10,000 (the total vested amount), allocated across the 65 shares you received:

• Basis per share: $10,000 ÷ 65 = ~$153.85/share
• Why? The IRS treats the withheld shares as if you received them and sold them immediately to pay tax. Your basis includes the full vested amount.

If you later sell the 65 shares at $150/share:

• Sale proceeds: 65 × $150 = $9,750
• Cost basis: $10,000
• Capital loss: $250 (short-term, because you held less than one year)

Holding periods: the one-year threshold

Your holding period for long-term capital gain treatment starts on the vesting date, not the grant date. If you vest on January 15, 2025, and sell on January 14, 2026, you have held the shares for less than one year—any gain is short-term and taxed as ordinary income.

If you sell on January 16, 2026, you have held the shares for more than one year—any gain qualifies for long-term capital gain rates.

The company’s grant date and vesting schedule do not extend your holding period. Many employees are surprised to learn that even if they were “granted” the RSUs three years ago, if the vesting date was recent, the holding period clocks start from vesting.

Restricted stock vs. RSUs (different rules)

RSUs are contractual units; you own nothing until vesting. Restricted stock is actual shares, issued to you immediately at grant, but subject to a vesting schedule. For RSUs, the tax event is vesting. For restricted stock, the tax event is grant (ordinary income on FMV at grant date), unless you make an 83(b) election to defer taxation to the vesting date.

This article focuses on RSUs, which are now the dominant form of equity compensation. Restricted stock is less common.

Double-counting: what you should NOT do

A common mistake: counting both the ordinary income at vesting and the subsequent capital gain as “total compensation.”

Correct approach:

• Ordinary income at vesting: taxed in the year of vesting
• Capital gain post-vesting: taxed in the year of sale

You do not add them together. The ordinary income is your total tax hit on the vesting date; the capital gain (or loss) is separate and depends on the price movement after vesting.

Wrong approach:

• Treating the grant-date stock price as your “real” basis, then taxing the entire rise from grant to sale as a capital gain.

The IRS and brokerage tax reporting (via Form 1099-B) will not support this. You must use the vesting-date FMV as your basis.

Reporting RSU gains on your return

You will receive a Form 1099-B (Proceeds from Broker and Barter Exchanges) when you sell the vesting or restricted shares in your account. The brokerage will report the sale price and gross proceeds. Your cost basis (the vesting date FMV) will or may not be reported by the brokerage, depending on whether the brokerage has access to your original vesting data.

You must report this on Schedule D (Capital Gains and Losses) and Form 8949 (Sales of Capital Assets). Your ordinary income from vesting (the box 1 amount on your W-2, or additional income reported by your employer separately) is already included in your W-2 wages.

If the brokerage does not report your cost basis correctly, you will need to adjust it manually on your return or ensure the brokerage has your vesting date and FMV on file before you sell.

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