If you are in the process of – or thinking about – selling your home in Washington State, the closing stages may not be upfront in your mind. Eventually you will have to tackle the most dreaded part of money exchanging hands – taxes.
As you may know, Washington State doesn’t tax income the way most other states do so taxing your income in this way may be new to you. But don’t worry, this is everything you need to know about capital gains tax for real estate in Washington.
In Washington we are subject to capital gains tax on the sale of certain assets over $250,000. Real estate falls squarely in this category. If you have held a property for longer than a year, you will be required to pay the capital gains tax. This rate is 7% as of 2022.
Keep in mind, another tax you will have to pay is the Real Estate Excise Tax (REET) that is levied on the sale of real estate property in the state of Washington. The REET rate in Washington state ranges from 1.1% to 3.0% of the sales price of the property. The exact rate depends on the sales price of the property and is determined by the county in which the property is located. For example, if you are purchasing a home in Washington state for $500,000, the REET may be around 1.28% or $6,400. It is important to be aware of the REET and to budget for it when purchasing a home in the state. Calculate the estimated Real Estate Excise Tax for your home using our helpful REET calculator.
This tax is currently facing a legal battle as Washington State Superior Court Judge Brian Huber has struck down the tax as unconstitutional. For now, the tax is in effect and you should plan on setting aside 7%. First payments are due on or before April 18, 2023 and the revenue will be used to fund the education legacy trust and common school construction account.
If you owe capital gains tax, you are required to file a capital gains tax return along with a copy of your federal tax return. The return is due at the same time as your federal income tax return – even if you have an extension. This does not extent the due date for the payment, though. Late fees and penalties will apply to late payments.
Almost always the seller is responsible for the capital gains tax. In some cases the buyer may choose to pay the capital gains tax if it makes sense for the deal. If you specifically want this negotiated in the deal, make sure to discuss that early on.
This is not meant to be legal advice and if you have any questions, reach out to the Department of Revenue directly.
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