RSU Adjusted Cost Basis - Difference Between Ordinary Income Reported (y) and Adjusted Cost or Other Basis (z)

[Edelweiss23]

Hello!

Could somebody please help answer this question about my RSU transactions?

My broker has issued a 1099-B with a “Supplemental Information” section.

This form has 2 columns among other columns: Ordinary Income Reported (y) and Adjusted Cost or Other Basis (z)

For some transactions, Ordinary Income Reported (y) and  Adjusted Cost or Other Basis (z) match, while for other transactions they do not match.

The transactions where they match, both “y” and “z” = number of shares * FMV on the date of distribution.

All this makes sense. I understand very well that I need to adjust the cost basis so that I don’t get taxed twice.

However, for some transactions,  Ordinary Income Reported (y) and  Adjusted Cost or Other Basis (z) DON’T match.

Could someone please help me understand why?

Here’s the distribution information for a sample transaction:

Grant Date : 2020

Purchase Date : 2022

Shares distributed: 40

Shares netted at FMV to cover tax withholding: 14

Net Shares deposited: 26

FMV on the trade date of distribution: $526.71

So, my understanding is that the cost basis is $526.71 * 26 = $13,694.46

I sold these 26 units all at the same time for a selling price of $504.39. After some commission fees, the total proceeds from the sale were $13,113.84

However, in my 1099-B’s “Supplemental Information” section, the sale of these 26 units  has been broken into 2 transactions.

Transaction-1

Units 10

Proceeds $5,043.78

Ordinary Income Reported (y) $5,267.10

Adjusted Cost or Other Basis (z) $5,489.62

Wash Sale Loss Disallowed $0.00

Adjusted Gain Loss   -$445.84

Transaction-2

Units 16

Proceeds $8,070.06

Ordinary Income Reported (y) $8,427.36

Adjusted Cost or Other Basis (z) $9,139.41

Wash Sale Loss Disallowed $1002.52

Adjusted Gain Loss -$1069.35

The proceeds of Transaction-1 and Transaction-2 add up to $13,113.84, which is what I expected. I sold these 26 units all at the same time for a selling price of $504.39. After some commission fees, the total proceeds from the sale were $13,113.84

The Ordinary Income Reported (y) of the 2 transactions adds up to $13,694.46. It makes sense because it’s = $526.71 * 26

However, the Adjusted Cost or Other Basis (z) of the 2 transactions adds up to $14,629.03

How is the Adjusted Cost or Other Basis (z) calculated and why is it different from the Ordinary Income Reported (y) for this transaction? For other transactions, the two numbers are equal.

~Thanks

[GeorgeM777]

It is not clear why your firm adjusted your cost basis.  Your original cost basis for all 40 shares was $527 (numbers are rounded to the nearest whole dollar amount); however, your adjusted basis for Transaction 1 reflects a per share cost basis of $549 and for Transaction 2, the adjusted per share cost basis is now $571.  Generally, we recommend that taxpayers use the adjusted cost basis amounts because it is the most up-to-date information.  However, in your situation, because the cost basis amounts have changed rather significantly, you might consider discussing the matter with your firm to find out why the basis amounts have changed.

Additionally, have you checked box 14 on your W-2?  Box 14 is used by employers to report different forms of compensation.  Your employer, in addition to including the RSU amount in Box 1 wages, may have also reported separately in Box 14.  

Lastly, Transaction 2 reflects a disallowed loss as per the wash sale rule.  The wash sale rule disallows a loss whenever a security is sold for a loss and then re-purchased within the 30 day period before the sale date, or within the 30 day period after the sale date--a 61 day period.   RSU vesting is the functional equivalent of a purchase, thus, check to see if you purchased the security in question within that 61 day time period.  Note, dividend reinvesting counts as a purchase. 

@Edelweiss23 

[Edelweiss23]

Thank you, @GeorgeM777 . I appreciate you taking the time to read this post and reply.

I had messaged my broker (Fidelity) about similar transactions last year, but to no avail. So, I thought I’d check if the TurboTax community has seen something like this. I’ll try messaging the broker again this year.

There are multiple RSU sale transactions like this and the total difference between sum of Ordinary Income Reported (y) and  Adjusted Cost or Other Basis (z) across all transactions is more than $3000!

Regarding box 14 - I just have VPDI

By the way, the footnote of my 1099-B says - "Adjusted cost or other basis provided may include the following adjustments: ordinary income reported, dividend reinvestment, return of capital/principal and wash sale loss disallowed. In the case of publicly traded partnerships, the adjusted cost or other basis may not include distributions in excess of taxable income. Please consult your tax advisor and the information on your K-1 to determine if any adjustment to the cost basis is necessary."

[GeorgeM777]

It's prudent to check with Fidelity on this issue.  You can report the adjusted cost bases in TurboTax, but you can also make adjustments to those bases if you feel you have the evidence to support your adjustments.  What is the name of the company that issued the RSUs?  We can review their quarterly reports and/or annual reports for the period around the time your RSUs vested to determine how your company determined what price to assign to the RSUs when they vested.  Usually such information is contained within the compensation section of such reports.  

@Edelweiss23 

[Edelweiss23]

My broker said - "The adjusted cost basis could be different from the income reported if there was a wash sale incurred.."
Schwab's article explains this - https://www.schwab.com/learn/story/primer-on-wash-sales. Section "Q: How does the wash sale rule work?".

I have previously sold at loss and that loss must have been added to my current cost basis.

In general, I sell immediately after my RSUs vest and I have grants from multiple years that I sell just after every vesting date. It's not clear how they decide on which transaction to adjust because I have multiple transactions on every vest date.

For now i'll just use the Adjusted Cost or Other Basis (z) for tax-filing purpose.

@GeorgeM777 , thanks for spending your time on this.

[JohnB5677 · Accepted solution]

In general, I sell immediately after my RSUs vest and I have grants from multiple years that I sell just after every vesting date.

• If you are selling, and acquiring the RSU stock on the vesting date, any sales at a loss will become Wash Sales.  If it's possible, can you sell your shares 31 days after acquiring new shares.  That would help to resolve the problem.

It's not clear how they decide on which transaction to adjust because I have multiple transactions on every vest date.

• The IRS uses a FIFO (First in First out) method of accounting for stock transactions.  So, if you sell at a loss the first shares you acquired from 30 days before, up to 30 days after will be the ones that get adjusted basis.

Example:

You sell 50 shares at a $1 loss.  You purchase 75 within the wash sale window.  The $1 is added to the basis of the first 50 shares. No adjustment to the other 25 shares.

You sell 50 shares at a $1 loss.  You purchase 25 within the wash sale window.  The $1 is added to the basis of the first 25 shares.  The loss is allowed for the other 25 shares.

[Edelweiss23]

Thanks for the FIFO explanation , @JohnB5677 
Regarding selling after 30 days - that's exactly what I was planning to do going forward