State & Local Tax

BREAKING NEWS: Washington Supreme Court Affirms Capital Gains Tax

March 24, 2023

By a margin of 7-2 the Washington Supreme Court upheld the constitutionality of the capital gains tax passed by the state legislature in 2021.  See our previous atrilcle for more details: https://gmco.com/washington-state-7-capital-gains-tax/

Individuals with long-term federal capital gains realized in 2022 over $250,000 will be assessed a 7% tax from certain Washington sourced transactions.

The capital gains tax collected will be used to fund education and child care initiatives of the state.  The state anticipates approximately 7,000 Washington residents will be subject to the tax in the first year with projected revenue over the next 6 years to be $2.5 billion. During the past several months, the Washington Department of Revenue developed a specialized website to allow taxpayers to register and pay the tax online through the “MyDOR” website.

The tax will be imposed on long-term capital gains from transactions involving tangible property in Washington or the intangible property of Washington residents.  To calculate the tax, each household is allowed a $250,000 exemption.  The 7% tax will be due on the amount over the exemption.  If a married filing joint taxpayer shows $300,000 of net federal capital gains tax that is all subject to the Washington capital gains, the total exemption is $250,000.  The tax due will be 7% on the excess of $50,000 or $3,500.

In addition to the $250,000 automatic exemption, a taxpayer may be eligible for a charitable contribution deduction.

The following is a partial list of common transactions exempted from the tax.

  • Real Estate
  • Transactions involving assets held in a retirement account
  • Livestock and timberland
  • Limited sales of small businesses

We anticipate the Washington Department of Revenue will release more guidance on the rules related to capital gains tax, but in the meantime, the tax will be due on April 18, 2023.  An online extension of time to file a completed return is allowed, but it is not an extension to pay.

Our state and local tax (SALT) professionals are available to assist if you have questions about these recent changes. Please contact our SALT Team at SALT@GMCO.com or shown below: