Best Tax Moves After IPO Losses: Cut Your 2025 Tax Bill

What bankers won’t say about IPO losses (and why the IRS cares)

Here’s the street-level truth: most IPO buyers don’t get the pop, they get the hangover. Bankers talk about allocations and “long-term partnerships,” but the tape tells a different story. The median IPO buyer who chases the after-market or holds through the first lockup doesn’t beat the index; they often trail it. Jay Ritter’s long-run IPO study (updated 2024) shows newly public stocks underperform the market by roughly 20% over the first three years on a buy-and-hold basis, on average. And around the 180-day lockup expiration, selling pressure is a thing: Field & Hanka (2001) documented abnormal drops of roughly 1-3% around the expiration window as restricted shares hit the float. In plain English: supply shows up, bids step back, prices sag.

And that, weirdly, is where tax planning gets interesting. If your IPO allocation or first-week buy is trading below cost heading into year-end 2025, you can turn that red ink into a tax asset, real cash flow, if you move deliberately and document cleanly. Sounds fussy, but it’s not. Ok, it is a little fussy, but it’s worth it.

• Capital loss offsets: Realized capital losses offset realized capital gains dollar-for-dollar in the U.S. If you’re sitting on gains from AI winners or private exits earlier this year, harvested IPO losses can neutralize that tax bill.
• $3,000 ordinary income offset: If losses exceed gains, up to $3,000 can reduce ordinary income in 2025 (married filing separately is $1,500). The rest carries forward indefinitely until used, which is why disciplined loss harvesting compounds as a “tax asset.”
• Carryforwards: Unused capital losses don’t expire. They wait for future gains, including those you might realize in a better tape next year.
• Timing matters: You need a realized loss in 2025. Trade date controls tax year. With T+1 settlement (U.S. since May 28, 2024), your sale still counts for 2025 as long as the trade executes by December 31. Settlement speed doesn’t change wash-sale or tax-year recognition rules.
• Wash-sale guardrails: Don’t trigger the 30-day wash-sale rule by buying back the same or “substantially identical” shares within 30 days before or after your sale. If you do, the loss isn’t gone; it’s deferred and added to the basis of the new shares, but you lose the 2025 deduction you probably wanted.

If you’re thinking, “But I still like the company,” that’s normal. Use a temporary substitute that’s not substantially identical, an industry ETF or a close peer, then observe the 31-day window and rotate back. Over-explaining a simple thing here: sell the loser, don’t rebuy that exact same ticker for 31 days, keep market exposure with something similar-but-not-the-same, lock the tax loss, then decide if you want back in. That’s the point.

Why bother? Because many IPO allocations underperform after lockup when insiders can finally sell, which creates fertile ground for best-tax-moves-after-ipo-losses. You’re not celebrating a bad trade, you’re monetizing it. Do it before year-end 2025, keep clean records (trade confirms, notes on replacement securities), and you convert a bruise on your P&L into lower checks to the IRS. Kinda the only silver lining bankers won’t pitch on the roadshow.

Losses that actually save you money: capital rules in plain English

Here’s the short version: IPO losses can reduce your tax bill right now. The IRS has a simple-but-annoying netting order, and if you respect it, you can turn a red P&L line into fewer dollars sent to the government. I’ll keep this dollar-first.

The netting order (how the math actually runs):

1. First, net short-term gains and losses (positions held ≤ 1 year). These are taxed at your ordinary rate, up to 37% federally in 2025, plus the 3.8% NIIT if you’re over the thresholds.
2. Separately, net long-term gains and losses (held > 1 year). These get 0%/15%/20% federal rates in 2025, depending on income.
3. Then cross-net the results: if one bucket is a loss and the other is a gain, offset them. Whatever’s left is your final capital gain or loss.

Why aim losses at short-term gains first? Because short-term gains are taxed at ordinary rates. Wiping $10,000 of short-term gain at a 37% bracket can save ~$3,700 federal, versus ~$2,000 if that gain were long-term at 20%. The code doesn’t let you pick the order, but you can pick what you sell. If you have both short- and long-term losers, sell the short-term losers first if your goal is to neutralize short-term gains.

The $3,000 rule (still the workhorse in 2025): If, after all that netting, you’re left with a net capital loss, you can deduct up to $3,000 against ordinary income this year ($1,500 if MFS). That’s been the number for years; it’s still $3,000 for 2025. Anything beyond $3,000 carries forward unlimited under current law until used.

Quick example with IPO bruises:

• You harvest a $12,000 short-term loss from a 2025 IPO that slipped after lockup. Elsewhere you’ve got $9,000 short-term gains from other trades and $4,000 long-term gains from an ETF.
• Step 1: Net short-term = -$12,000 + $9,000 = -$3,000.
• Step 2: Net long-term = +$4,000.
• Step 3: Cross-net = +$4,000 – $3,000 = +$1,000 long-term gain. You pay long-term rates on $1,000. If you’d harvested just $1,000 more short-term loss, you’d zero it out.

State differences that matter before you hit sell:

• California (CA): Taxes all capital gains as ordinary income. Generally conforms to the federal $3,000 capital loss limit and unlimited carryforward mechanics, so your federal netting flows through. The rate impact is bigger because CA rates can be high.
• New York (NY): Also treats capital gains as ordinary income for state purposes and broadly follows federal AGI. Practically, your $3,000 federal limitation and carryforwards already sit in AGI, and NY starts there.
• New Jersey (NJ): Different animal. No $3,000 offset against ordinary income. Capital losses can only offset capital gains in the same tax year, and no carryforward for net capital losses under NJ Gross Income Tax rules. If you’re NJ-resident, harvest with that constraint in mind.

Reality check for 2025 markets: We’ve seen a bunch of 2025 IPOs trade below issue after lockups and secondary prints, no shock when liquidity shows up. Not naming tickers here, but 20-30% drawdowns into day 181 aren’t rare this year. That volatility is painful, yes, but it’s exactly what lets you bank short-term losses while you keep exposure via a not-substantially-identical substitute. I know, the definitions and ordering get a bit brain melty. That’s normal.

Bottom line steps (practical, not perfect):

• Map your year-to-date short-term gains first. That’s the expensive pile.
• Target IPO losers that are still short-term; confirm you can replace them with a similar-but-not-identical holding for 31 days to avoid wash sale issues we covered earlier.
• Run the $3,000 ordinary-income offset math before December 31. If you’re sitting on a net loss bigger than $3,000 and no more gains to offset, you’re carrying forward the rest, fine, but know it.
• Check state rules, CA/NY usually follow the federal $3k-and-carryforward framework; NJ does not.

If that felt a bit dense, same here. The hierarchy is rigid, but you control which losses you realize. Do that part right, and IPO pain in 2025 can still lower your April bill in a very real dollar way.

Harvest without tripping: wash sales, options, and the 30‑day trap

Here’s the landmine map. The wash sale window is 30 days before and 30 days after your loss sale date, so a 61‑day zone where rebuying “substantially identical” shares will defer your loss. That isn’t a made‑up banker rule; it’s straight out of IRS Publication 550 (2024), which defines the window and extends it to contracts and options. If you repurchase inside that window, your loss isn’t gone; it’s added to the basis of the new shares, and the holding period tacks on. Useful sometimes, but not when you’re trying to clean up 2025’s tax bill.

Where folks slip up, especially with IPOs that feel “cheap” after a 30-50% drawdown earlier this year, is with options. Buying calls or selling deep‑in‑the‑money puts during the window can count as acquiring a substantially identical position. Been there. You sell your IPO loser on September 10, then sell a 90‑delta put on September 20 thinking you’re just “getting paid to wait.” That can trigger the wash sale and punt your loss into the new position’s basis. The IRS examples in Pub 550 spell this out, can’t remember the exact page number (56?) but it’s in the wash sale chapter.

What about switching tickers that track the same thing? If you sell an IPO and buy a single‑stock ETF that synthetically tracks that same underlying within the window, you’re in the danger zone. Same with share class swaps, Class A for Class B of the same company is generally substantially identical. Different story if you move to a peer or a sector proxy.

My take: if the replacement is designed to replicate the same security’s exposure (same issuer, same index, or economic equivalent via options), treat it as substantially identical and avoid it for 31 days.

So how do you stay invested without tripping the rule?

• Use substitutes that aren’t substantially identical. For a busted software IPO, build a 3-5 name peer basket or use a broad sector ETF. Make it defensible: different issuer, different index methodology, and meaningful differences in factor tilts. Document your rationale in a quick note. It doesn’t need to be a novel, three bullets will do.
• Keep options out of the window. Avoid buying calls or selling deep ITM puts on the name (or a single‑stock ETF version of it) for 30 days before/after. If you absolutely must use options, stick to the sector ETF, not the name you just sold.
• Tax‑lot selection matters, HIFO/Specific ID. If you’ve averaged down, use Specific ID to pick the highest‑cost lots and crystalize the biggest loss while leaving the low‑basis shares intact. Many brokers default to FIFO; switch to Specific ID at trade time and capture the loss you actually want. HIFO is the mechanical cousin if your platform supports it.

Quick date math example: sell on September 21, 2025. Your no‑touch window on substantially identical positions runs from August 22 through October 21. Re‑enter on October 22 with common shares if you want the loss today. If you slipped and bought calls on September 5, that’s inside the 30‑days‑before part and can taint the sale. Annoying, but fixable, close the replacement and wait out the clock.

One last practicality, recordkeeping. The IRS wash sale rule is mechanical, but brokerage implementations vary. I’ve seen 1099‑Bs mis‑flag option legs against equity sales. Cross‑check: Pub 550 (2024) defines the 61‑day window, the basis adjustment, and that options/contract rights count. If your broker’s wash sale calc disagrees with the facts, push back with your trade log. Not glamorous, but it’s real money.

Enthusiasm spike here, because it’s low‑hanging fruit: write a 2‑minute memo when you swap into a sector ETF or peer basket. “Not substantially identical because different issuer/index; target beta and industry exposure maintained.” That tiny note can save a headache if anyone asks in April.

Employees with cratered equity: ISOs, RSUs, and AMT cleanup

If you were an employee or founder when the IPO printed and the stock slid after the lockup, yeah, this hurts. The tax moves are different from plain-vanilla capital loss harvesting, and they’re often counterintuitive. I’ve sat across from too many folks who thought they “paid tax at the peak” and then froze. Don’t freeze. Model it, then decide. This is the section of the best-tax-moves-after-ipo-losses playbook that gets people real dollars back.

ISOs you exercised pre‑IPO that triggered AMT. If you exercised ISOs in a prior year and paid Alternative Minimum Tax, you likely have an AMT credit carryforward sitting there waiting for a regular‑tax year to use it. The mechanics: AMT on the ISO bargain element showed up on Form 6251, and the credit accumulates on Form 8801 until you can claim it. For reference, the AMT rates are 26% up to the breakpoint and 28% above; the breakpoint is $232,600 for 2024 (IRS Instructions for Form 6251, 2024). In 2025, model a sale that flips you back into regular tax and frees that credit. I know that sounds abstract, but it’s practical: run a 2025 sale scenario with your CPA/Excel to see how much AMT credit you can actually recover this year.

Disqualifying disposition can be a feature, not a bug. An early sale of ISO shares (within 1 year of exercise or 2 years of grant) is a disqualifying disposition that converts what was AMT pain into ordinary income, potentially reducing or reversing the AMT hit. The ordinary income is the lesser of (a) the spread at exercise or (b) the sale gain. Quick numbers to make it real: say strike $5, you exercised at $25 pre‑IPO (so $20 spread), and you sell in 2025 at $12. That sale is below the FMV at exercise, so ordinary income caps at the actual gain over strike, $7, not $20. The extra $13 that created AMT in the prior year becomes part of your AMT basis and can help you recover AMT credit via Form 8801. Point is: run scenarios before year‑end; sometimes a “bad” ISO sale is actually a tax clean‑up sale.

RSUs that settled near the peak. RSUs are taxed as wages when they vest/settle, based on FMV that day, and that income shows on your W‑2. If your RSUs vested around the IPO pop and the stock is down now, you’ve got wage income at the high and a capital loss today, two separate buckets. On your return, the W‑2 wage is fixed; your sale later lands on Form 8949/Schedule D. Don’t let brokerage 1099‑B basis errors trick you; your basis in RSU shares is the amount that already hit wages at vest. One more gotcha: many companies withhold at the IRS supplemental wage flat rate, 22% up to $1,000,000 and 37% above (IRS Pub. 15‑T, 2024), which is often below a Bay Area software engineer’s true marginal rate. Translation: you may still owe in April unless you top up withholding or make an estimated payment this fall.

83(b) early exercisers. If you filed an 83(b) on an early exercise, your basis is what you paid plus any ordinary income you recognized then, and your holding period started at exercise. Now that shares are underwater, consider harvesting losses to offset other gains this year, especially if you’ve been trimming indexes or had a mutual fund cap‑gain distribution. Track basis precisely; I’ve seen people double count the same spread and then we spend a Saturday unwinding it, my fault once, too, not proud of it.

Real talk for a second: in 2025 we’ve seen plenty of IPO names spike and then sag while rates chopped around and volatility flared on Fed days. That makes the timing annoying, because the tax calendar doesn’t care about your vesting calendar, but it also creates opportunity. My take: prioritize the moves that create cash refunds or reduce April surprises. AMT credits you can actually use, RSU withholding gaps you close now, and ISO sales that turn a theoretical loss into a real tax asset. Same idea said differently: make the taxes work for you, not the other way around.

References: IRS Instructions for Form 6251 (2024) for AMT rates/breakpoint; Form 8801 for AMT credit; IRS Pub. 15‑T (2024) for 22%/37% supplemental wage withholding; Pub. 525 and Pub. 550 (2024) for equity comp and sale reporting rules.

Advanced plays: worthless, delistings, and the donation twist

When an IPO really goes off the rails, delisted, restructuring limbo, or trading for pennies, the tax code gives you a few levers. The big one: the worthless security deduction. The rule is strict: the stock has to be totally worthless in that tax year. Not “ugly,” not “down 98%.” Zero. If that’s the case, you treat it as sold for $0 on December 31 of that year and report it on Form 8949 and Schedule D. Paperwork‑wise, I attach broker screens, bankruptcy docket printouts, and any issuer notices. Delisting alone doesn’t prove worthlessness, companies get kicked to the pink sheets every week, so I want an objective marker (Chapter 7 filing, cancellation of equity, or a court order). I know, it’s fussy, but it’s what the IRS looks for.

If it’s nearly worthless but still trades for fractions, fix the date. Two paths I use: (1) sell for a nominal amount (even $1) to lock the loss in the current year, or (2) abandon the position, document intent plus an affirmative act (a written instruction to your broker). For publicly traded stock, abandonment is still a capital loss and the date is when you actually abandon. I’m oversimplifying a bit, partnership and debt interests can behave differently, but for plain vanilla equity it’s usually that simple. Pro tip: a nominal sale avoids later arguments about whether it was truly worthless that year.

Why the urgency on timing? Because losses offset gains dollar‑for‑dollar, and then up to $3,000 of net capital loss can offset ordinary income per year (per IRS rules that have been around for years). Anything beyond that carries forward indefinitely until used. In a year like 2025, with IPO pops and flops and a lot of biotech and de‑SPAC orphans bouncing around, setting the year matters.

Now the charity angle, the “donation twist.” Rule of thumb I pound into laptops: never donate depreciated shares. If your IPO stock is below basis, sell it first to capture the capital loss, then donate the cash. You keep the loss and still get the charitable deduction. If you donate the loser directly, the deduction is limited to fair market value and you forfeit the loss, double whammy in the wrong direction.

Flip side: if you’re charitably inclined and you’ve got winners elsewhere (index fund held for 18 months, a 2023 AI name that doubled), pair your harvested losses with donations of appreciated shares. That’s the two‑fer. For publicly traded stock held more than a year: you generally deduct fair market value and avoid the capital gain entirely. A few concrete numbers that matter in 2025: cash gifts to public charities are generally limited to 60% of AGI; gifts of long‑term appreciated property to public charities are generally limited to 30% of AGI; any excess carries forward up to 5 years (IRS Pub. 526 and Pub. 561; 2024 instructions, same limits this year). For donations of publicly traded stock you don’t need an appraisal regardless of size, but you do need Form 8283 once you go over $500 in non‑cash gifts, your broker statement usually suffices.

One more housekeeping item since people ask: if your IPO loser got delisted earlier this year and your broker won’t let you trade it, call and ask about an auto‑liquidation or a “worthless security removal” process. Some custodians process a de minimis purchase or journal entry so you can report the sale in 2025. Keep the confirmations. If they balk, an abandonment letter with the CUSIP, date, and explicit relinquishment of rights usually does the trick.

My take right now, with rates still choppy and Q3 liquidity thin on microcaps: don’t wait for the perfect headline. If you think it’s toast, lock the date with a $1 sale. If it truly hit zero, document it for the 8949. And if you’re giving this year, sell the losers, donate the winners, clean and efficient. I’ve messed this up once in my career; I don’t plan to do it again.

References: IRS Pub. 550 (2024) for worthless securities reporting; Schedule D & Form 8949 instructions (2024) for sale reporting; IRS Pub. 526 and 561 (2024) for charitable deduction limits (60% of AGI for cash; 30% for long‑term appreciated property) and 5‑year carryforward; Form 8283 (2024) for noncash contributions.

Tie it all together: a 2025 year‑end checklist that actually gets done

Okay, here’s the one‑pager I’m actually running myself in Q4. It’s fast, sequenced, and it keeps you from stepping on your own tax foot when liquidity is patchy and the Fed path keeps whipsawing sentiment. And yes, I’ve botched the order before, once, so the sequence matters.

1. Inventory winners and losers by tax lot. Pull your current positions with lot‑level detail (not just the position total). Sort by unrealized P/L and flag anything with a big short‑term gain and anything with an obvious loss. If your broker’s cost basis report is messy, export to CSV and re‑calc the gains/losses yourself, 10 minutes now saves hours in January.
2. Map short‑term vs long‑term buckets. Short‑term gains are taxed at ordinary rates (top marginal is 37% for 2025), while long‑term capital gains hit the 0%/15%/20% brackets. I started to say “improve after‑tax IRR” but really, just know which bucket each lot lives in.
3. Harvest losses against short‑term gains first. A $1 loss offsets a $1 gain, but offsetting a 37%‑taxed short‑term gain is usually worth more than offsetting a 15% long‑term gain. If your losses exceed gains, remember the federal rule: up to $3,000 of net capital losses can offset ordinary income each year, with the rest carrying forward indefinitely (IRS Pub. 550, 2024).
4. Mind the 30‑day wash‑sale calendar. The wash‑sale rule disallows the loss if you buy a “substantially identical” security within 30 days before or after the sale. Put a 31‑day reminder on your calendar today. If you accidentally trigger it, the disallowed loss just gets added to the new lot’s basis and its holding period tacks on, annoying, but not fatal.
5. Stay invested with non‑identical exposure. Want to keep market beta or sector tilt? Swap the stock for an industry ETF or a close, but not identical, peer for the 31‑day window. Example: sell a single solar name at a loss and park in a broad clean‑energy ETF; or rotate between two different semiconductor ETFs with different indexes. Don’t be cute with near‑identical share classes.
6. Set a post‑wash reminder. If you plan to rotate back into the original name, schedule a check‑in on day 32. I literally set a phone alarm because I’ve missed the window before and then the move ran away on me. Annoying week.
7. ISOs and AMT, model the credit recovery. If you ever exercised Incentive Stock Options and got hit with AMT, pull old Form 6251 and your AMT credit carryforward on Form 8801. The AMT credit can offset regular tax in future years until used; it isn’t refundable by itself. If you harvested big losses this year that push regular tax down, check how that interacts with AMT, don’t strand credits. Quick model in a spreadsheet beats surprises in April.
8. Coordinate with state taxes. States vary on conformity to federal rules. Many follow the $3,000 capital loss limit, but some treatment of wash sales, ISO adjustments, or NIIT doesn’t line up. Reality check with your state’s instructions before you create a state‑only loss you can’t use. If you’re bi‑coastal or moved this year, watch part‑year allocations.
9. Charitable angle. If you’re giving later this year, donate appreciated long‑term positions (avoid the capital gain entirely) and harvest losses on the laggards. Federal deduction limits still apply: cash up to 60% of AGI, long‑term appreciated property up to 30% of AGI, with 5‑year carryforwards (IRS Pub. 526/561, 2024). Keep Form 8283 handy for noncash gifts.
10. Final nudge, pull last year’s 1099‑B and act this week. Grab your 2024 1099‑B to confirm any loss carryforwards on your 2024 Schedule D. Then, schedule two trades you’ll execute this week, not next month, to start the cleanup: one loss harvest against a short‑term gain, one replacement‑exposure buy. Small wins compound.

Quick market sanity check: spreads have been jumpy and Q4 liquidity can get quirky, especially around holidays. But loss‑harvesting works in quiet or choppy tapes. Keep the mechanics tight, document lots, and don’t let the 30‑day clock eat your tax alpha.

Sources: IRS Pub. 550 (2024) for capital losses ($3,000 ordinary income offset); IRS Pub. 526 & 561 (2024) for charitable deduction limits; Forms 6251 & 8801 (2024 instructions) for AMT and AMT credit carryforward.

Frequently Asked Questions

Q: How do I turn my IPO losses this year into a tax benefit?

A: Realize the loss in 2025: sell the shares that are below cost so the loss is “real.” That loss can offset any 2025 capital gains dollar-for-dollar, then up to $3,000 can reduce ordinary income, with the rest carrying forward indefinitely. Trade date controls the tax year, even with T+1. Just don’t trigger a wash sale by rebuying too fast.

Q: What’s the difference between a wash sale and tax‑loss harvesting if I still like the stock?

A: Tax‑loss harvesting is you selling at a loss to bank a deductible loss, then repositioning without violating rules. A wash sale happens if you buy the same or “substantially identical” security within 30 days before or after the sale, which disallows the loss and adds it to the new cost basis. If you want exposure while you wait out the 30 days, use a not‑too‑close substitute (sector ETF, broader index, or a peer basket). For IPOs, avoid rebuying the exact same ticker inside that 30‑day window, yea, even if the lockup break “looks cheap.” Use specific lot ID when selling so you realize the largest losses cleanly.

Q: Is it better to sell before or after the 180‑day lockup expiration?

A: Tactically, many IPOs see 1-3% abnormal weakness around lockup expiration (Field & Hanka, 2001) as supply hits the tape, so pre‑lockup selling can avoid that air‑pocket. Strategically, your tax calendar matters more: if you need a 2025 realized loss, the sale’s trade date must land in 2025. If you want to keep exposure, consider trimming before lockup to crystalize losses, then sit 31+ days (wash‑sale safe) and rebuy or rotate into a not‑identical proxy in the meantime. Don’t let a maybe 1% micro‑timing call override a very real tax offset on larger gains.

Q: Should I worry about timing with T+1 and year‑end when harvesting losses?

A: Yes, but the rule is simpler than people think. For U.S. stocks and ETFs, your tax year is set by the trade date, not settlement. With T+1 in place, a trade executed on December 31, 2025 still counts for your 2025 taxes even though it settles in early January. The bigger timing headache is the wash‑sale window, not settlement. If you sell on December 31 to realize a loss but rebuy the same or substantially identical shares anytime from December 1 to January 30, you can trip the wash sale and lose the current‑year deduction (the disallowed loss gets added to the new basis). So plan the calendar: either sell earlier and start the 30‑day clock before year‑end, or sell at year‑end and wait until at least early February to repurchase. Practical checklist I use with clients (and yea, I do this in my own accounts):

• Confirm trade date lands in 2025.
• Use specific share identification to target high‑cost lots.
• Park in a not‑identical substitute for 31+ days if you want exposure.
• Watch corporate actions (ticker changes, conversions) that could be “substantially identical.”
• Document everything, confirmations, lot IDs, because tax software and brokers can misclassify. Get the date right, avoid the wash sale, and that red ink becomes a cash‑flow helper against gains from earlier this year.

@article{best-tax-moves-after-ipo-losses-cut-your-2025-tax-bill,
    title   = {Best Tax Moves After IPO Losses: Cut Your 2025 Tax Bill},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/best-tax-moves-after-ipo-losses/}
}