RSU Adjusting Cost Basis

[ThisIsGraham]

I've read through the forums and various other sites trying to figure out exactly what I need to do to adjust the cost basis on the sale of my RSUs, but I'm really confused on the calculation I'm supposed to do. 

What I understand is:

• RSUs are taxed as normal income when they vest
• The 1099-B will report a $0 cost basis
• A supplemental info document should show the adjusted cost basis - but I don't have one of these / not sure if I will get one (via E-Trade)

I think I need to find the FMV (I don't see this particular acronym mentioned on any documents in E-Trade) of the stocks when they vested, and deduct the sale of the stocks from that number to determine the adjusted cost basis - is that correct? 

e.g. if the vested FMV was $1000, and I sold them for $900, the adjusted cost basis would be $1000 and my gain would be -$100? 

I don't know if any of this is making sense, so I'd appreciate any help to point me in the right direction please! I also am not sure how to find the FMV - would that just be the stock price at the time they vested (so I can check the document in E-Trade for when they vested and take the cost per share and treat that as the FMV)? 

Thanks in advance!

Graham

[TomD8 · Accepted solution]

The per share cost basis of your RSU's in any lot is the compensation created by the vesting (which is reported on your W-2) divided by the GROSS number of shares you received in that lot.

[ThisIsGraham]

Thanks for the reply.

Does this mean if I sold shares that vested in 2021, I'd have to get my 2021 W2, grab the value in Box 14, and divide that value by the number of shares that vested to get the FMV? 

e.g.

Box 14 = $1200

# of shares = 22

FMV = $54.54

Therefore, if I sold 10 shares for $500, the adjusted cost basis would be $545.4 and the gain would be -$45.4? 

[TomD8 · Accepted solution]

@ThisIsGraham --

Correct.  (In your scenario you'd have a capital loss, not a gain.)

[ThisIsGraham]

Thank you for the help, much appreciated! 

[ThisIsGraham]

Apparently, I'm still getting confused, the numbers don't seem right to me. Here's an example (close to reality):

• I was granted RSUs in 2020
• In 2021, 22 of the RSUs vested
• In the W2 for 2021, Box 14 had an amount of $4000
• $4000 / 22 = $181.81
• The 22 shares were sold in 2022, at $72 a share (total of $1584)
• So this would mean the adjusted cost basis would be $4000 with a capital loss of $2416? - This is the part that's stumping me, it seems too high? Or does Box 14 on the W2 really inflate the FMV? 

[TomD8]

You can look up the actual per-share market price of the stock on the vesting date in order to confirm that the $181.81 per share price is correct.

[ThisIsGraham]

Yeah the share price has never really gone above ~$90, so it's doubled essentially. It's really confusing. 

[ThisIsGraham]

I just saw on E-Trade that 39 actually vested, but 17 were traded for taxes. So does that mean I take the $4000 and divide by 39 (even though I only ever received 22 of the shares), and then use that number to calculate the adjusted cost basis? 

[TomD8]

Yes, that's correct.  Remember that your compensation is based on the GROSS number of shares that you received, not on the net number of shares you received after some were sold or withheld for taxes.

[Aims173]

Hi Can you please reply what did you ended up doing ?

For total W2 amount of 4000, did you divide by Gross 39 shares or Net 22 Shares to arrive at Cost basis?

I am thinking if I use Gross 39 share for my basis, Don't I loose the benefit of Taxes I already paid earlier when the units were vested?

Will it be ok if I just take the total amount that is in Box14 of W2 and report that as a basis. (Even though I received only 22 shares for gross 39 that were vested)?

[ThomasM125]

The taxes are paid on the basis which is the value of the stocks when they vested. In this case, the value of the 39 shares is $4,000 and that is what is used to assess the taxes at vesting. That is the original cost basis, so you need to divide it by the number of shares, 39 in this case, to determine the cost per share. Seventeen of them where sold at time of vesting, at a cost basis of $1,743.58 ($4,000/39 x 17). So you have a basis of $2,256.42 remaining ($4,000 less $1,743.58). If you sell the remaining shares, your basis is $2,256.42 for that sale. @Aims173

[Aims173]

Thank you so much ThomasM125 for your quick response.  Just one clarification,

Let's say (Opt 1) I sold these 22 shares at a lost for $1100 and use 2,256 as my basis, that will only allow me to take a net loss of $1,156 in my return, for the $1,743 in taxes I paid (when the units were vested).

But (Opt 2) if I use 4000 as my basis, that will allow me to take a net loss of 2,900 (1100-4000) in my return for the $1,743 taxes I paid in past.  

Assuming 43% tax rate - Net ultimate benefit/cash I received from RSU is $1100. Assuming 43% tax rate, Net tax I should have paid on this Net $1100 cash received, should be $473 ($1100*43%). This is how 2 scenarios impact the current year return - 

Opt 1 - Tax saving from Loss > 1,156@43% = -497, Tax paid in past 1743, Net tax paid = 1246

Opt 2 - Tax saving from Loss > 2,900@43% = -1247, Tax paid in past 1743, Net tax paid = $496

[TomD8]

It may help to think of the per-share cost basis.  If the taxpayer's compensation for 39 shares received = $4,000, then his per-share cost basis is $102.56.

If he then sells 22 of those shares, his cost basis for the transaction is 22 x 102.56, which = $2,256.41.

The cost basis of the original 39 shares is not changed by the fact that some were sold to pay taxes.

[Aims173]

Super Simple and helpful. Thank you for your reply.