RSUs can make up a significant portion of someone's compensation. But many people treat their RSUs like they aren't "real" income, which I think is the opposite of how they should be viewed.
Think of RSUs as a bonus paid to you in stock instead of cash. If your company paid you a $100,000 cash bonus, would you immediately use the entire $100,000 to buy your company's stock? I've hardly ever heard someone answer yes.
RSUs are compensation. You're taxed on them as income when they vest, and there's nothing wrong with using that compensation to fund your lifestyle and financial goals. One of the biggest goals we see people use their equity for is buying a home, especially as home prices have continued to rise in many areas.
If you're looking to use your RSUs to buy a home, here's how I would think through it.
Step 1: Determine how much house you can actually afford
Before deciding how many shares to sell, you first need to figure out how much cash you'll actually need. Start by looking at home prices in the area you're targeting. If homes are routinely selling above asking, you may want to add another 3% or so to your expected purchase price to give yourself some cushion.
From there, I'd ask a few qualifying questions.
Will your housing payment be under ~30% of your gross income? Make sure you're including the entire housing payment: mortgage principal and interest, property taxes, homeowners insurance, and any HOA fees.
If a large portion of your compensation comes from RSUs, I'd be more conservative when calculating your income. I would generally count your salary and expected cash bonus, but consider discounting your expected RSU compensation by around 50% because those future shares aren't guaranteed to be worth what they are today. If you expect $200,000 of RSUs to vest next year, a drop in your company's stock price could materially change that number.
Can you still save around 20% of your gross income? Calculate what 20% of your expected gross income actually is. After accounting for the new housing payment, will you still have enough cash flow to save and invest around that amount? A house can technically fit within your monthly budget while still making it difficult to build wealth elsewhere.
How much cash will you have left after closing? You don't want to drain your entire liquid net worth to buy the home. Ideally, you still have an emergency fund after the down payment and closing costs, plus some additional cash for the expenses that inevitably come with a new home. Furniture, repairs, moving costs, improvements, appliances, it's usually not if something comes up, it's when.
Step 2: Look at your upcoming RSU vesting schedule
Once you know how much cash you'll need, look at what RSUs have already vested and what you have vesting between now and the expected home purchase.
Upcoming vests are often the lowest-hanging fruit. When your RSUs vest, their value is generally treated as ordinary income and that value becomes your cost basis in the shares. If you sell immediately after vesting, there may be little or no additional capital gain.
For example, if you plan on buying a home six months from now and have two RSU vesting dates before then, estimate what the after-tax proceeds from those vests will be. Those proceeds can become part of your down payment plan and may reduce how much existing company stock you need to sell.
Step 3: Review the RSU shares you already own
Next, look at the vested RSU shares already sitting in your brokerage account. For each tax lot, you want to know the cost basis, current value, unrealized gain or loss, and whether selling would result in a short-term or long-term capital gain.
Generally, shares held for more than one year receive long-term capital gains treatment, while shares held for one year or less are subject to short-term capital gains treatment. Long-term treatment is typically preferable, but that doesn't necessarily mean you should hold every share until it reaches the one-year mark.
Calculate how much cash you would actually receive from selling different lots and how much of those proceeds represent a taxable gain. That will help you determine which shares are the most efficient to sell.
Step 4: Don't underestimate the taxes
This is where I see people get it wrong. If you own $200,000 of company stock, that does not necessarily mean you have a $200,000 taxable gain.
Let's say you sell $200,000 of vested RSU shares with a $150,000 cost basis. You receive approximately $200,000 of gross proceeds, but your capital gain is only $50,000. It's the $50,000 gain, not the entire $200,000, that is potentially subject to capital gains tax.
For long-term gains, you need to account for federal capital gains tax, potentially the 3.8% Net Investment Income Tax for higher earners, and state income tax. Short-term gains are generally taxed at your ordinary income tax rate, which can be significantly higher. For someone already in the highest federal tax bracket, that could mean a 37% federal rate on the short-term gain before even considering state taxes.
This is why you want to calculate the after-tax proceeds before deciding how much stock to sell. If you need $250,000 for your down payment and closing costs, selling exactly $250,000 of stock may not leave you with $250,000 available to use.
Step 5: Decide which shares make the most sense to sell
This is where the planning becomes more nuanced. You may have newly vesting shares with essentially no gain, older shares with long-term gains, newer shares with short-term gains, shares trading below their cost basis, or shares that are only a few weeks away from qualifying for long-term treatment.
You have to weigh the tax consequences against the bigger financial goal. If you're buying a home in six months, waiting for a tax lot to become long-term might save you money on taxes, but continuing to hold the stock also exposes your down payment to the risk of your company's share price falling.
If the money has a specific purpose in the near future, protecting that money can become more important than squeezing every last bit of tax efficiency out of the sale.
Bringing It All Together
Using RSUs to buy a home can be a great way to turn a concentrated piece of your compensation into an asset that supports one of your biggest personal goals. The key is having a plan before you need the cash. Figure out how much house you can comfortably afford, determine how much cash you'll need for the down payment while still maintaining healthy reserves, map out your upcoming vesting schedule, and then review the tax impact of selling the shares you already own.
The goal isn't simply to sell the shares with the lowest tax bill. It's to find the most efficient way to fund the home purchase while considering your taxes, cash flow, investment concentration, upcoming RSU vests, and overall financial plan. Your RSUs are compensation, and sometimes the best use of that compensation isn't continuing to own more company stock, it's using it to fund the life you're actually working for.
