The existing Washington capital gains tax, which took effect January 1, 2022, imposes a 7% tax on gains exceeding $270,000 in tax year 2024 from the sale or exchange of certain long-term capital assets. Under the new law, which is retroactive to January 1, 2025, the 7% tax rate will apply to the first $1 million of taxable gains, and an additional 2.9% tax will apply on taxable gains exceeding $1 million. The following table summarizes the new capital gains tax structure under 2025 law:

The Washington Legislature passed the increase to the state capital gains tax in April, in Engrossed Substitute Senate Bill 5813. Governor Ferguson signed the bill into law on May 20, 2025. The bill also included significant changes to the Washington estate tax, including an increase to the Washington estate tax exemption amount and increases to the tax rates, as discussed in Matthew Hart’s recent blog post.

The Washington capital gains tax applies to certain assets held for more than one year, including stocks and bonds, some tangible personal property (depending on the domicile of the taxpayer and location of the property at the time of the sale or exchange), intangible personal property owned by a taxpayer who is domiciled in Washington at the time of the sale or exchange, and other non-exempt capital assets

Property exempt from the capital gains tax include:

• Real estate, including used mobile homes, used park model trailers, used floating homes, and improvements constructed on leased land;
• Assets held in retirement accounts;
• Some interests in privately held entities and/or certain trusts (generally, those trusts reportable as their own taxpayer);
• Some assets owned by and interests in qualified family-owned business; and
• Various other assets, including some timber/timberland, depreciable trade or business property some livestock, goodwill for car dealership franchises, condemnations, some agricultural property, and commercial fishing privileges.

Under the law, an individual’s first $270,000 of capital gains in tax year 2024 is allowed as a deduction and exempt from the tax. The combined deduction for married couples and domestic couples is also $270,000. The $270,000 deduction is subject to annual adjustments for inflation (the deduction in 2023 was $262,000), and the Washington State Department of Revenue has not yet released the updated tax rate for 2025.

An additional deduction of up to $108,000 is available for taxpayers who contribute at least $270,000 to a Washington charity during the same tax year as the taxable transfer, under 2024 law. The $108,000 deduction ($105,000 in 2023) and $270,000 charitable minimum ($262,000 in 2023) will also both be adjusted for inflation. A credit is also allowed for the amount of B&O tax owed on the same sale or exchange that triggered the capital gains tax, as well as any income or excise tax already paid to another jurisdiction on the same sale or exchange.

Taxpayers owing Washington capital gains tax are required to file a tax return with the Washington Department of Revenue, and failing to file the required return will result in penalties.

The constitutionality of the Washington capital gains tax was challenged in past lawsuits, but was upheld as constitutional by the Washington Supreme Court in Quinn v. Washington in 2023.

If you have any questions about how the changes to the Washington capital gains tax could impact your estate planning, please contact an attorney in our estate planning practice group, including Ryan Montgomery or Allison Int-Hout.