Real Estate Excise Tax vs. Capital Gains Tax: What's the Difference?

If you're a current homeowner in the beautiful state of Washington and are considering selling your property, it's essential to navigate the tax landscape with confidence. Real estate transactions come with their fair share of taxes, and understanding them can save you both time and money. Two taxes that often come into play in such situations are the Real Estate Excise Tax (REET) and the Capital Gains Tax. While they may sound similar, they serve distinct purposes and have different implications. Let's break it down and simplify things for you.

Understanding REET: The Real Estate Excise Tax

The first tax you should be aware of is the Real Estate Excise Tax (REET). This tax is levied on the sale of real property in the state of Washington and is usually paid by the seller. However, in some cases, the buyer may be required to contribute if the seller doesn't cover the full amount. The exact REET rate depends on the sales price of the property, and in 2021 the median home price in Washington State was approximately $560,400. This placed it within the 1.28% bracket, meaning that roughly $7,173 would be due to the state. The precise amount will vary depending on the specific county where the property is located. For instance, if this home was sold in Seattle, an additional 0.50% would be added bringing the total to $9975.12. To calculate your REET based on your location, you can use our Real Estate Excise Tax Calculator.

As of January 1, 2023, here are the selling price thresholds and corresponding REET rates:

  • Less than or equal to $525,000: 1.1%
  • Greater than $525,000 and less than or equal to $1,525,000: 1.28%
  • Greater than $1,525,00 and less than or equal to $3,025,000: 2.75%
  • Greater than $3,025,000: 3.0%

Real Estate Excise Tax (REET) must be paid to the county treasurer where the property is situated on the sale date, irrespective of the recording date, except in cases of a controlling interest transfer.

What is the Capital Gains Tax?

The second tax on our list is the Capital Gains Tax. It's essential to understand that this tax applies to any gain in excess of $250,000 in a calendar year from the sale or exchange of certain long-term capital assets. These assets may include stocks, bonds, business interests, or other investments and tangible assets. The Capital Gains Tax came into effect on January 1, 2022, and the first payments were due on or before April 18, 2023. Revenue collected from this tax primarily funds the education legacy trust account and common school construction account.

It's important to note that Washington's Capital Gains Tax does not apply to the sale or exchange of real estate. This exemption holds regardless of various factors:

  • The duration of the seller's ownership of the property
  • Whether the property was used as the seller's residence
  • The property's location
  • The property type (commercial or residential)
  • The ownership entity (individual, trust, or business)

So, if you're selling real estate in Washington, you can rest assured that the Capital Gains Tax won't come into play for this transaction.

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Distinguishing REET from Capital Gains Tax

Now that we've introduced both taxes, let's clarify the key differences between them:

  • Purpose and Administration: REET is primarily associated with the sale of real property and is paid to the state. Capital Gains Tax, on the other hand, applies to the sale of various long-term capital assets, including investments and tangible assets, and its revenue serves specific purposes like education funding.
  • Calculation Methods: REET is calculated based on the sales price of the property, with varying rates depending on the price range. Capital Gains Tax, meanwhile, applies to gains from the sale of specified assets and follows different calculations.
  • Applicability to Different Transactions: REET is linked to real estate transactions, whereas Capital Gains Tax is more broadly applicable to various types of long-term capital assets.

Your Guide to Informed Decision-Making

Our aim with this blog post is to provide clarity on these two important taxes for homeowners in Washington State. However, it's crucial to remember that tax laws can change over time, and the information presented here is based on the current regulations. If you have specific questions or concerns about your individual situation, we strongly recommend consulting with a qualified tax professional.

In addition to this valuable tax information, we'd like to offer our assistance. At Nine8 Redevelopment, we specialize in buying homes in any condition and can guide you through the entire process. What sets us apart are the unique perks we offer:

  • No Fees: We believe in transparent pricing, ensuring more money stays in your pocket.
  • No Repairs: Forget about the hassle of fixing up your home; we buy properties as-is!
  • Local Professionals: Our team in Western Washington can help you determine if selling your home is your best option.
  • Free Local Move: Let us make your transition to your next destination smooth and stress-free.

If you're ready to explore your options for selling your home, don't hesitate to contact us. We're here to help you close this chapter and open a new one with confidence.

For more detailed information on real estate taxes in Washington State, including Real Estate Excise Tax (REET) and Capital Gains Tax, please refer to the official state sources:

For the latest updates and specific tax-related inquiries, it's advisable to consult with tax professionals or government authorities.

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