Washington Capital Gains Tax

The new Washington capital gains tax imposes a 7% tax on an individual’s adjusted long-term capital gains. The tax applies only to individuals, and is imposed on them as the “beneficial owners” of long-term capital assets that they recognize for sale. Individuals are also taxable on gains recognized by pass-through entities and other disregarded entities of which they are owners to the extent that those gains relate to Washington property.

Gains from the sale of intangible personal property are allocated to Washington if an individual was domiciled here during the year that the sale or exchange occurred, and gains from the sale of tangible personal property are allocated to Washington if the property was located in the state at the time of the sale or exchange. A person’s domicile is defined as the place where the person physically lives, is regarded as home, and intends to return to, even if currently residing elsewhere. The capital gains tax has raised nearly $900 million in its first year, exceeding original projections. But critics have challenged its legality, and a repeal initiative has qualified for the ballot this fall.

Individuals can also deduct certain types of expenses when calculating their capital gains. For example, they can deduct the cost of certain personal residences, investments, and IRA contributions. They can also deduct the cost of qualifying family-owned small businesses (QFOSB). Additionally, they can deduct any gains they recognized from the sale of livestock or breeding stock. In addition, the state has a special deduction for horses’ sales. Returns and payments are due by April 18 of the following year. The new law has received significant media attention, and the state expects the initial collections to exceed expectations.

Who Must Pay Washington Capital Gains Tax?

To determine if you are required to pay Washington’s new capital gains tax, first calculate your federal net long-term capital gain for the tax year. Then, subtract any long-term capital losses from the amount calculated in step 1. This will give you your adjusted capital gains.

For individuals, gains from the sale of intangible personal property are allocated to Washington if the taxpayer was domiciled in the state at the time of the sale. A person is domiciled in a state when they live there with the intent to remain there indefinitely.

Gains from the sale of real estate are allocated to Washington if the individual is a resident of the state, or the gain is passed through to an entity that owns real estate in the state. The entity must be “principally directed or managed” in Washington.