Special Report

Washington State Proposed Capital Gains Tax

August 2020

State Proposes Capital Gains Tax on Real Estate; Enactment Could Influence Sales Activity

Tax reconditioning would remove Washington from the list of seven U.S. states without a capital gains levy. Gov. Jay Inslee has proposed a long-term capital gains tax of 9 percent on the sale of certain real estate, stocks and bonds. If approved by the House and Senate, this motion would rank the state as having the nation’s sixth highest such tax. The current proposal resembles a similar request submitted last year that was voted down by the state’s Senate. However, now Washington is facing a deficit of $4.5 billion for the 2019-2021 operating budget and a negative cash balance in its general fund. The potential implementation of this proposal would represent another recent change to how commercial property sales in the state are taxed. As of January 2020, sellers are subject to a graduated real estate excise tax rate that ranges from 1.1 percent for sub-$500,000 transactions to 3 percent for properties that trade for more than $3 million. This graduated rate, which generated a wave of sales activity prior to its enactment, replaced the previous flat state rate of 1.28 percent.
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