Is There a 7% Washington State Capital Gains Tax?

{Updated June 2023}

Did you know that Washington State recently passed legislation introducing a capital gains tax? It has sparked a lot of discussion and raised concerns among investors and taxpayers alike. In this article, we’ll delve into the details of the 7% Washington State capital gains tax, explore its implications, and provide strategies to mitigate its impact on your financial well-being.

Whether you’re a seasoned investor or someone planning for the future, understanding the ins and outs of this tax is crucial. So, let’s dive in and unravel the complexities surrounding Washington State’s capital gains tax.

If you have any questions, thoughts, or personal experiences related to the Washington State capital gains tax, we encourage you to share them in the comments section below. Let’s engage in a constructive conversation and learn from each other’s perspectives.

Thank you for being a part of our community, and let’s navigate the world of capital gains tax together!

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Is There a Capital Gains Tax in Washington State in 2023?

Does Washington State have a capital Gains tax?  As of 2023, there is no Washington state capital gains tax. This means that any profits made from the sale of assets such as stocks, bonds, and other assets are not subject to state taxes. This can be a significant advantage for investors, as a capital gains tax in Washington State would eat into investors profits.

There are a few key reasons why there is no capital gains tax in Washington state.

Washington State on a map
  • First, Washington state does not have an income tax, so there is no need for a capital gains tax in Washington state.
  • Second, Washington state relies heavily on sales taxes, which are a more efficient way to raise revenue. 
  • Third, if a Washington State capital gains tax was applied, it can be difficult to administer.  And many states have found that capital gains taxes are not a reliable source of revenue.

Some critics argue that they should have a State of Washing capital gains tax, as it would provide a steadier source of revenue. 

Others argue that the capital gains tax would be detrimental to investment and economic growth in the state of Washington. 

Ultimately, the decision of whether or not to impose a capital gains tax is a political one, and it will likely be up to the state legislature to decide.

Related:

15 Ways to Avoid Capital Gains Taxes?

How To Minimize Your Capital Gains Tax?


State of Washington State Capital Gains Tax
State of Washington State Capital Gains Tax

Did Washington State Pass a Capital Gains Tax?

Yes and no, with a little bit of maybe in the future.  Let’s explain.

History: Proposed Washington State Capital Gains Tax        

Through the years, there have been various attempts to pass a capital gains tax in the state, but until 2021, none have been successful. The most recent attempt was in the state legislature last year, when a bill was passed to tax capital gains at a rate of 7%. 

State of Washington State Legislature

The reason why a capital gains tax has been difficult to pass in Washington state is because it is a highly progressive tax. This means that it would disproportionately affect high-income earners, who are generally more likely to have capital gains. In a state like Washington, where the cost of living is already high, this could make it difficult for people to stay here.

There is also the issue of fairness. Some people argue that it is unfair to tax capital gains at a higher rate than other forms of income. They point out that capital gains are already taxed at the federal level, so taxing them again at the state level would be double taxation. 

Passed: A New Capital Gains Tax Washington State

Yes, the state legislature passed a new Washington State capital gains tax.  ESSB 5096 (RCW 82.87) which created a Washington State 7% capital gains tax on the sale of stocks, bonds, business interests, or property.  The new capital gains tax that imposes a 7% tax in Washington State effective date was January 1, 2022.

The state of Washington has a long and complicated history when it comes to capital gains. In 2021, the Washington State Legislature passed a law that would have taxed capital gains at a rate of 7 percent. This law was immediately challenged in the Washington Supreme Court. The case went all the way to the Snohomish County Superior Court, where the court ruled that the tax was unconstitutional. The case was then appealed to the Washington State Court of Appeals, which ruled that the tax was constitutional. The case was then appealed to the Washington Supreme Court, which ruled that the tax was unconstitutional.

Overturned: Washington State Capital Gains Tax Lawsuit 

On March 1s, 2022 – a Douglas County Superior Court struck down the State of Washington capital gains tax, saying the tax was unconstitutional in the state and not valid, since it was not uniform. This was in the case Quinn vs. State of Washington

Constitution Washington State Capital Gains Tax

The State has announced they plan to appeal the ruling to the State of Washington’s Supreme Court. Washington Attorney General Bob Ferguson was quoted as saying “All the parties recognize this case will ultimately be decided by the State Supreme Court,” and  “We respectfully disagree with this ruling, and we will appeal.”  He also agreed to drop the  “excise tax” from the bill.

What did the law look like?  

In Washington state, the tax on capital gains would be imposed on the gains from the sale of capital assets, including stocks, bonds, and real estate. The proposed tax rate was 7% for both individuals and corporations. There would be no separate deduction for capital gains. The tax would be imposed on the net capital gain, which is the difference between the sales price and the adjusted basis of the asset. The adjusted basis is the original cost of the asset, plus any capital improvements, minus any depreciation. If you are married and file a joint return, you can split your capital gains between you and your spouse. If you file a separate return, you can only deduct your own capital gains. The purpose of the capital gains tax is to tax investment income at the same rate as other forms of income, such as wages and salaries. The tax is imposed on both federal and state tax returns.

There were many exemptions, deductions and credits built into the plan to reduce the tax bill for most residents.  For example, a standard deduction of $250,000 was in the bill.  The new tax would have only affected a small percentage of people.

The new Washington state capital gains tax was expected to apply to less than one-tenth of a percent of all residents in the state, and generate up to $500 million a year in revenue.  A portion of the revenue was targeted to fund child care and early learning.  For details, see the Washington State Department of Revenue site.

Related:


Seattle washington skyline and mountain at sunset

What is The Capital Gains Tax in Washington State and How Much Is It?

This is a constantly evolving situation, with the state of Washington capital gains tax likely to eventually be decided by the State Supreme Court.  Currently, there is no  capital gains tax in the State of Washington, but you are still required to deal with federal capital gains taxes on your federal income tax return.

Short Term Capital Gains Tax in Washington State

As of this writing, there is still no short term capital gains tax in Washington.

Washington State Long Term Capital Gains Tax

As of this writing, there is still no short term capital gains tax in Washington.

Related: 


FAQ frequently asked questions

FAQ – Frequently Asked Questions:

Capital Gains Tax On Real Estate In Washington State?  Washington State Capital Gains Tax Real Estate ?

The capital gains tax Washington is not applicable to the sale or exchange of real estate. How long the seller possessed the property is irrelevant. 
Whether or not the seller lived there, where  the property is located, which kind of property it is (commercial or residential), who is the property owner (individual, trust, or business).  Doesn’t matter – there is no capital gains tax on real estate in Washington State.

Washington State Capital Gains Tax On Rental Property?

The capital gains tax Washington is not applicable to the sale or exchange of real estate. How long the seller possessed the property is irrelevant. 
Whether or not the seller lived there, where  the property is located, which kind of property it is (commercial or residential), who is the property owner (individual, trust, or business).  Doesn’t matter – there is no capital gains tax on real estate in Washington State.

Capital Gains Tax Washington State Primary Residence? Capital Gains Tax On Home Sale Washington State?

The capital gains tax Washington is not applicable to the sale or exchange of real estate. How long the seller possessed the property is irrelevant. 
Whether or not the seller lived there, where  the property is located, which kind of property it is (commercial or residential), who is the property owner (individual, trust, or business).  Doesn’t matter – there is no capital gains tax on real estate in Washington State.

I Need a Capital Gains Tax Calculator On Sale Of Property Washington State

Here it is, are you ready?.  Take a pen and paper and draw a huge zero on it. 
Now multiply that zero by the amount of capital gains profit you have. 
And your answer is zero – you will owe no capital gains tax on real estate in Washington State. See above for an explanation of why it is zero.

When it comes to taxation, there are many different types of property that are subject to different rules. In Washington state, personal property may be subject to a long-term capital gains tax, while capital assets are subject to an exchange of capital assets tax. Intangible property, such as patents and copyrights, is subject to a tax on property, while real property is subject to a tax on real estate. Transfer of property can also be subject to different taxes depending on the type of property involved. For example, the sale of timber is subject to a real estate excise tax, while the sale of real estate is subject to an excise tax. Real estate investment trusts and other legal entities are subject to different taxes depending on their business activities.

As of 2023, the long-term capital gains tax rate in Washington state for personal property is pending at 7%. Capital assets are defined as property that is held for investment or business purposes, and can include intangible property, real property, and exchange-traded securities. The tax on property is imposed on the sale of timber, real estate, and other property. Real property is taxed based on its value, while intangible property is taxed based on its transfer price. The excise tax on real estate is imposed on the sale of real estate investment trusts and other legal entities. Business entities are taxed based on their income, while pass-through entities are taxed based on their share of the entity’s income.

Cryptocurrency:

In Washington state, the time of sale for cryptocurrency is considered to be when the cryptocurrency is transferred from one person to another. When cryptocurrency is sold for cash, the time of sale is considered to be when the cash is received. Charitable donations of cryptocurrency are treated as if they were sold for cash at the time of the donation. The amount of the charitable contribution is the fair market value of the cryptocurrency at the time of the donation. Charitable contributions of cryptocurrency are also treated as if they were sold for cash at the time of the contribution. The amount of the charitable contribution is the fair market value of the cryptocurrency at the time of the contribution.

Related:

How To Avoid Capital Gains Tax on Your Home Sale 

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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.