Washington State Capital Gains Tax: 2026 Rates & Exemptions

Last updated: September 5, 2026

Washington State taxes long-term capital gains at 7% on the first $1 million of taxable gain (after the annual standard deduction — $278,000 for 2025, indexed) and 9.9% on taxable gain above $1 million. Because the tiers apply after the deduction, the 9.9% rate does not kick in until total 2025 gains exceed $1,278,000 — and the $1 million tier break is not indexed for inflation. Real estate sold directly, retirement accounts, and gains excluded federally under §1202 (QSBS) are generally not subject to the tax. Returns and payment are due annually with the federal filing deadline; 2025 tax year returns were due May 1, 2026 under a storm-related DOR extension.

Status (as of September 5, 2026): Washington's 9.9% tax on income above the $1 million standard deduction remains law, effective January 1, 2028, unless voters repeal it or the courts strike it down. Initiative 645 is on the November 3, 2026 ballot and would repeal that tax if it passes; it would not repeal the capital gains excise tax (chapter 82.87 RCW), which the Washington Supreme Court upheld in Quinn v. State. No court has enjoined the income tax. Plan as though it arrives on schedule — treat repeal or a court win as a tail benefit, not a plan.

Washington has no personal income tax — yet. But it does have a standalone Washington State capital gains tax that hits founders, investors, and high earners hard at exit. Understanding this tax — its rates, its exemptions, its interaction with QSBS and residency rules, and the new 9.9% income tax scheduled for January 1, 2028 — is essential planning for anyone facing a liquidity event in Washington. This guide covers what the tax is, who pays it, what's exempt, and the legitimate ways to reduce or avoid it.

What Is the Washington State Capital Gains Tax?

Washington's capital gains tax is a standalone excise tax on long-term capital gains realized by individual taxpayers. The tax was enacted in 2021, took effect in January 2022, and was upheld by the Washington Supreme Court in Quinn v. State, 1 Wn.3d 453, 526 P.3d 1 (2023). The U.S. Supreme Court denied certiorari in January 2024. The tax is structured as an excise — a tax on the privilege of selling assets — rather than as a tax on income, a structural choice the legislature made to avoid the constitutional uniformity-clause problem that has historically defeated Washington income tax proposals.

Is There a 2.9% Capital Gains Tax in Washington?

You may have seen references to a "2.9% capital gains tax." That figure is not a separate tax — it's the additional surcharge that SB 5813 layered on top of the original 7% rate for gains above $1 million. Add the 2.9 points to the base 7%, and you get the 9.9% top tier. So there is one capital gains tax with two tiers (7% and 9.9%), not a separate 2.9% tax. The confusion is understandable, because the legislature built the top tier as an add-on rather than a clean second bracket.

Rates and Thresholds (2026)

• Standard deduction: $278,000 for 2025, indexed annually for inflation (the 2026 indexed amount had not been published by the Washington DOR as of September 5, 2026)
• 7% on the first $1,000,000 of taxable gain (after subtracting the standard deduction)
• 9.9% on taxable gain above $1,000,000 — for 2025, that means total gains above $1,278,000

The 9.9% tier was added by SB 5813, signed by Governor Ferguson on May 20, 2025, retroactive to January 1, 2025. The $1 million threshold is not indexed for inflation — meaning more taxpayers will cross into the higher tier each year.

Note: This 9.9% capital-gains tier is part of the existing capital-gains excise tax. It is separate from the new 9.9% income tax (ESSB 6346) scheduled to take effect January 1, 2028, and the two taxes are governed by different statutory frameworks even though they share a rate.

What Three Real Exits Actually Cost

Numbers make this concrete. Assume a single filer, long-term gains, no real estate or QSBS exclusion:

• A $750,000 gain. Subtract the $278,000 deduction, leaving $472,000 — all in the 7% band. Tax: about $33,040.
• A $2,000,000 gain. Subtract the $278,000 deduction, leaving $1,722,000. The 7% base rate applies to all of it ($120,540); the 2.9% surtax applies to the $722,000 above $1,000,000 ($20,938). Total tax: about $141,478.
• A $5,000,000 gain that fully qualifies for the federal QSBS exclusion. Because the gain is excluded before it reaches your federal return, Washington never taxes it. Washington capital gains tax: $0 (see QSBS section below).

That last contrast — six figures versus zero — is why the planning sections below matter so much.

Who Pays the Tax?

The tax is imposed on individuals, not on corporations or LLCs directly. Pass-through gains, however, flow to the owners and count toward each owner's threshold. For married couples and registered domestic partners, the deduction and threshold rules require careful modeling — do not assume a sale can simply be split into two separate $1 million capital-gains tiers without reviewing filing posture, ownership, and Washington sourcing rules.

What Gains Are Subject to the Tax?

Long-term capital gains from the sale or exchange of:

• Stocks, bonds, and other securities
• Business interests (LLC interests, partnership interests, S-corp stock)
• Tangible personal property held for investment

What Gains Are Exempt?

Chapter 82.87 RCW reaches only long-term capital gain. Every carve-out below sits inside a base that already excludes short-term gain and ordinary income.

• Real estate — direct transfers of real property are exempt under RCW 82.87.050(1). On the sale of an interest in a privately held entity, the gain is exempt only to the extent it is directly attributable to real estate the entity owns directly (RCW 82.87.050(2)); the rest of the gain is taxable
• Retirement accounts — assets held in IRAs, 401(k)s, and similar retirement savings accounts (RCW 82.87.050(3))
• Depreciable business property — property depreciable under IRC §167(a)(1) or eligible for §179 expensing (RCW 82.87.050(6)), the exemption that keeps equipment and other depreciable assets in an asset sale outside the tax
• Condemnation — assets sold under, or under imminent threat of, condemnation proceedings (RCW 82.87.050(4))
• Livestock, timber, and fishing privileges — cattle, horses, or breeding livestock where more than 50% of the taxpayer's gross income for the year is from farming or ranching (RCW 82.87.050(5)); timber and timberland (RCW 82.87.050(7)); commercial fishing privileges (RCW 82.87.050(8))
• Auto dealership goodwill — goodwill from the sale of a licensed auto dealership (RCW 82.87.050(9))
• Family-owned small business sales meeting specific conditions — technically a deduction under RCW 82.87.060(3), defined at RCW 82.87.070, rather than an exemption
• QSBS gains excluded under federal Section 1202 — for now (see below)

These carve-outs reach long-term capital gain only, but they carry into the 2028 income tax. ESSB 6346 §302 subtracts long-term capital gain from federal adjusted gross income, adds back the gain taxed under chapter 82.87 plus the standard deduction, and keeps gain from sales exempt under RCW 82.87.050 out of the base (§302(3)). Gain that was never long-term capital gain — a property held a year or less, dealer inventory, recapture taxed as ordinary income, the ordinary-income slice of a business sale — is not subtracted, and no exemption in chapter 82.87 reaches it. How the two regimes interact.

Do I Pay Capital Gains Tax If I Sell My House in Washington State?

Generally, no. Gains from the direct sale of real property — your home, a rental, raw land you hold directly — are exempt from Washington's capital gains tax. The tax targets gains on financial assets and business interests, not real estate.

Three caveats matter. First, if you sell an interest in an entity (an LLC or partnership) that owns real estate, RCW 82.87.050(2) exempts the gain only to the extent it is directly attributable to real estate the entity owns directly — the rest of the gain (goodwill and other non-exempt assets) is taxable, and property held through a lower-tier entity may not qualify. Second, people who are dealers in real property (holding it as inventory rather than investment) have ordinary income, not capital gain, so their sales never enter this tax at all. For a straightforward sale of a home or investment property held in your own name, the exemption applies.

Third, the 2028 income tax follows the same line for long-term gain: ESSB 6346 §302(3) keeps long-term gain from sales exempt under RCW 82.87.050 out of Washington base income. What the income tax does reach is short-term gain and ordinary income — property held a year or less, dealer inventory, recapture taxed as ordinary income. Anyone flipping property should model 2028 separately.

QSBS and Washington's Capital Gains Tax

Federal QSBS exclusion piggybacks into Washington's tax base. If you exclude a gain under Section 1202, Washington does not separately tax it — because the excluded gain never enters Washington's starting tax base. Washington computes its tax beginning with the taxpayer's federal long-term capital gain as reported on the federal return; gains excluded under Section 1202 are excluded before the federal return is filed, so they simply are not in the number Washington taxes. For founders relying on the exclusion at an exit, the qualification analysis belongs in writing — a QSBS attestation letter documents the gross assets, active business, and redemption analysis before the sale closes.

That said, this is statutory conformity, not constitutional protection. Nothing in Washington's constitution requires the state to piggyback on federal AGI, and the legislature can change that at any time. SB 6229 in the 2026 session would have done exactly that — explicitly adding back federally excluded QSBS gains. It did not pass, but it came close enough to treat as a genuine warning shot.

→ Full guide: QSBS & Washington Taxes — A Start Here Guide

How to Reduce or Avoid the Washington State Capital Gains Tax

There is no single trick, but there are several legitimate planning levers. Which ones apply depends entirely on your facts, your timeline, and your tolerance for complexity. The biggest mistakes come from waiting until the deal is closing — most of these only work if they're in place before the sale.

Qualify for the QSBS exclusion. If your stock meets the Section 1202 requirements, the gain is excluded federally and therefore in Washington too. This is the single largest lever available to founders and early investors — frequently worth more than every other strategy combined. It has to be planned for from formation, not discovered at exit. See our complete QSBS guide. And if you do qualify, have a QSBS attestation letter prepared so the exclusion can be substantiated at exit — and verify mid-year that nothing has broken, because qualification is a continuing test, not a one-time event.

Change your domicile before you sell. For stock and other intangibles, RCW 82.87.100(1)(b) allocates the gain to Washington if you were domiciled here at the time of the sale — day counts alone do not move it. If your domicile has changed before the sale closes, the gain falls outside Washington's reach. The 183-day statutory residency test governs tangible personal property and feeds the 2028 income tax's resident definition, so in practice you change both. Late-stage moves stand or fall on the documented facts of domicile — see the residency section below.

Use the real-estate exemption and the family-business deduction. Direct real property sales are exempt under RCW 82.87.050, and gain on a qualifying family-owned small business can be deducted under RCW 82.87.070. Structuring a transaction to fit within an exemption is legitimate; assuming an exemption applies without confirming the conditions is where people get hurt.

Claim the B&O credit if the same sale bears both taxes. Where a single sale or exchange is subject to both Washington's business and occupation (B&O) tax and the capital gains tax, a credit prevents the same transaction from bearing both in full. Starting with tax year 2025, the credit runs against the capital gains tax: per DOR guidance, you may credit the B&O tax paid on the same sale or exchange against your capital gains liability. (For tax years 2022–2024, the credit ran the other direction — a B&O credit for capital gains tax due — and that version expired December 31, 2025.) This matters mainly for sales of business interests or assets where the transaction itself bears B&O tax; ordinary stock sales typically do not.

Time the gain. The $1 million threshold and the standard deduction reset each year. Spreading a large gain across tax years — through an installment sale, staged secondary sales, or simply choosing when to close — can keep more of the gain in the 7% band instead of the 9.9% tier. Timing also interacts with the 2028 income tax (below): 2026 and 2027 may be meaningfully cheaper years to recognize income than 2028 and beyond.

Give appreciated assets to charity — carefully. Donating appreciated stock can remove the gain from your return entirely. But Washington's charitable deduction has a Washington-specific catch that disqualifies most national donor-advised funds (see below). Charitable remainder trusts and similar structures are also worth modeling for very large gains.

Gifting and trust planning. Transferring assets before a sale — to family members in lower brackets, or into properly structured trusts — can move gain outside your Washington tax picture. This overlaps with estate planning and has to be coordinated with Washington's estate tax, which is among the most aggressive in the country.

None of these is one-size-fits-all, and several carry real risk if executed sloppily or too late. The common thread: the planning has to happen before the transaction, not during it.

Residency Planning: Can You Move to Avoid the Tax?

For founders approaching a liquidity event, residency planning has become one of the highest-stakes tax issues in the entire transaction. Two tests are in play, and they do different work:

1. Domicile — a fact-driven inquiry into where you actually live, intend to remain, and treat as your permanent home. For stock and other intangibles this is the test that matters: RCW 82.87.100(1)(b) allocates the gain to Washington if you were domiciled in the state at the time of the sale or exchange.
2. Statutory residency — maintaining a place of abode in Washington and being physically present in the state more than 183 days in the year (RCW 82.87.020). This test allocates gains on tangible personal property (RCW 82.87.100(1)(a)) and, alongside domicile, defines a resident for the 2028 income tax. By itself it does not reach a stock sale.

Day counts do not decide domicile. A founder who keeps a Washington home and spends most of the year here will have a hard time showing that domicile moved, so the practical plan changes both. Late-stage relocations — moves attempted in the weeks before closing — stand or fall on the documented facts of domicile.

→ Full guide: Residency Planning Before You Sell

The Charitable Deduction Has a Hidden Catch

Washington's capital gains tax includes a charitable deduction under RCW 82.87.080 — but only for donations to "qualified organizations" that are eligible under IRC §170(c) and are principally directed or managed within Washington. This is not a standard federal charitable deduction rule. It matters most for donor-advised funds: in Washington, the relevant organization is the DAF sponsor (Fidelity, Vanguard, Schwab, etc.), not the ultimate charity — and the major national DAF sponsors are not Washington organizations.

→ Full guide: Washington Capital Gains Tax Charitable Deduction

How and When to File and Pay

The Washington capital gains tax return is filed separately from, but alongside, your federal return. A few practical points:

• Electronic filing is mandatory. You file through the Washington DOR's My DOR portal (or approved tax-prep software), and you must attach a copy of your federal return and supporting documentation.
• Payment must be electronic — by electronic funds transfer or another DOR-authorized method such as credit card.
• Due date. The return normally tracks the federal deadline. For the 2025 tax year, the DOR moved the due date to May 1, 2026 for all filers (an extension tied to the December 2025 storms and flooding). That date has passed. If you did not file or pay by May 1, 2026 and do not have a filing extension in place, penalties and interest are accruing — consult your advisor promptly. One open question: the IRS later postponed the federal storm-relief deadline a second time, from May 1 to August 5, 2026, for taxpayers in the covered counties (including King and Pierce). RCW 82.87.110(1) sets the Washington due date at the date the federal return is required to be filed, so covered-county taxpayers have an argument that their Washington deadline moved too. The DOR has not said so as of September 5, 2026, and it framed the May 1 extension as a convenience, not a statutory consequence. Do not assume the state deadline moved; if you filed after May 1, raise the argument with your advisor rather than conceding penalties.
• Extensions don't extend payment. You can obtain a filing extension to October 15, 2026 if you have a federal extension and request the Washington extension on time — but the tax itself is still due May 1, 2026. An extension to file is not an extension to pay.

Prepayment opens this fall. Effective June 11, 2026, HB 1376 (Chapter 191, Laws of 2026) allows taxpayers to prepay the capital gains tax up to six months before the filing and payment due date; the DOR begins accepting 2026 tax year prepayments on October 15, 2026, for returns due April 15, 2027, through My DOR only. Whether prepaying in the year of sale affects the timing of any federal deduction is a separate question — the federal treatment of Washington’s excise tax for SALT purposes has its own complications, so run that analysis with your advisor before prepaying for deduction-timing reasons.

The Tax Stack: What Happens in 2028

On January 1, 2028, Washington's new 9.9% income tax (ESSB 6346) takes effect on income above a $1 million standard deduction ($1 million per individual; married couples and registered domestic partners share one). This is a separate tax from the capital gains excise — a true income tax under a separate statutory framework — and it applies to all forms of income, not just capital gains.

For founders and investors facing a near-term liquidity event, the implication is straightforward: 2026 and 2027 are the last two years to sell under the capital gains tax alone. A high-income founder who closes a $5 million non-QSBS exit in 2027 faces the current 7% / 9.9% capital gains tiers. The same founder closing in 2028 does not pay both taxes on the same dollars. ESSB 6346 §302 strips long-term gains out of the income-tax base, adds back the Washington-taxed gain plus the chapter 82.87 standard deduction, and §205 credits the capital gains tax paid against the income tax. The gain bears the greater of the two regimes, never their sum. For a taxpayer with meaningful ordinary income on top of the gain, “the greater” is the income tax — 9.9% from the first dollar above the income-tax threshold, not 7%, and not 7% + 9.9%. Where the gain is most of your income, the capital gains tax is the larger regime and the §205 credit reduces the income tax to zero. Full mechanics: Washington Capital Gains Tax vs. the New 9.9% Income Tax.

The practical questions to be modeling now: Can the transaction close before January 1, 2028? If not, can it be structured to spread recognition across years? Does the 2028 income tax change the residency calculus? These questions don't have one-size-fits-all answers, but they have deadlines — and the deadline is getting closer.

Status as of September 5, 2026: the income tax remains law; a repeal initiative and a constitutional challenge are both live. On May 4, 2026, the Washington Supreme Court held in Heywood v. Hobbs that ESSB 6346 is not subject to referendum — a ruling on referendum eligibility only, not on the tax's constitutionality. Repeal then moved to the initiative route: Initiative 645 was certified for the November 3, 2026 ballot on July 15, 2026. Litigation over the initiative's public investment impact disclosure has run its course without touching the certification, the ballot date, or the tax: the Thurston County Superior Court upheld the disclosure on August 7; Supreme Court Commissioner Michael Johnston denied Arthur West's emergency motion for a preliminary injunction on August 20 (West v. Hobbs, No. 105644-3); and on September 3 the Supreme Court, reported to be equally divided 4–4, denied West's motion to modify that ruling, so the disclosure appears on the ballot as drafted. West's separate constitutional challenge to the disclosure statute, RCW 29A.72.027, remains open and unresolved on the merits. A separate constitutional challenge to the tax itself, the Citizen Action Defense Fund suit, is pending in Klickitat County Superior Court; no injunction has issued. The planning posture: the tax remains law, effective January 1, 2028, unless voters repeal it or the courts strike it down — plan as though it arrives on schedule.

Tracking the repeal effort? Every ruling, filing, and deadline is logged on the Initiative 645 litigation and status tracker, updated as events occur.

→ Full guide: Washington's 9.9% Income Tax (ESSB 6346)

Legislative Timeline

• 2021: Original capital gains tax enacted
• 2022: Tax takes effect
• 2023: Washington Supreme Court upholds tax in Quinn v. State
• 2024: U.S. Supreme Court denies certiorari
• 2025: SB 5813 adds the 9.9% tier on gains over $1M (the "2.9% surcharge"), retroactive to January 1, 2025
• 2026: SB 6229 / HB 2292 (proposed QSBS add-back) fails to pass
• 2026: ESSB 6346 (9.9% income tax) enacted, effective January 1, 2028
• May 2026: In Heywood v. Hobbs, the Washington Supreme Court holds ESSB 6346 is not subject to referendum (a ruling on referendum eligibility only, not constitutionality)
• July 2026: Let’s Go Washington submits 511,408 signatures for IP26-645, the initiative to repeal the 9.9% income tax — certified for the November 3, 2026 ballot on July 15, 2026 (Initiative 645)
• Late July 2026: The Attorney General files the public investment impact disclosure (July 23); three actions challenging the disclosure are filed in Thurston County Superior Court
• August 2026: The Thurston County Superior Court upholds the disclosure and denies an injunction (August 7); West appeals directly to the Washington Supreme Court with an emergency motion (August 10); Supreme Court Commissioner Michael Johnston denies the emergency motion for a preliminary injunction (August 20).
• September 2026: The Washington Supreme Court denies West's motion to modify the commissioner's ruling (September 3; the Court reported equally divided 4–4), so the disclosure appears on the ballot as drafted. West's separate constitutional challenge to the disclosure statute remains open and unresolved on the merits; the Citizen Action Defense Fund's constitutional challenge to the tax remains pending in Klickitat County Superior Court.

Frequently Asked Questions

What is the Washington State capital gains tax rate? 7% on the first $1 million of taxable gain after the $278,000 standard deduction (2025, indexed); 9.9% on taxable gain above $1 million. Because the deduction comes off first, the 9.9% tier starts at total 2025 gains above $1,278,000. The $1 million tier break is not indexed for inflation.

How much is Washington’s capital gains tax on a $300,000 gain? About $1,540. Using the 2025 standard deduction of $278,000, a $300,000 long-term gain leaves $22,000 of taxable gain, all in the 7% band: $22,000 × 7% = $1,540. This assumes the full standard deduction is available and no exemptions apply; the 2026 indexed deduction had not been published by the DOR as of September 5, 2026.

Is there a 2.9% capital gains tax in Washington? Not as a separate tax. The 2.9% is the surcharge SB 5813 added on top of the 7% base rate for gains above $1 million, producing the 9.9% top tier. There is one capital gains tax with two tiers.

Could the 2028 income tax be repealed before it takes effect? Possibly. Initiative 645, which would repeal the 9.9% income tax, was certified for the November 3, 2026 ballot on July 15, 2026, and a constitutional challenge to the tax is pending in Klickitat County Superior Court. Litigation over the initiative's public investment impact disclosure has run its course without changing the certification, the ballot date, or the tax: the Thurston County Superior Court upheld the disclosure on August 7, 2026, a Supreme Court commissioner denied emergency relief on August 20, and the Supreme Court denied a motion to modify that ruling on September 3; West's separate constitutional challenge to the disclosure statute remains unresolved on the merits. No injunction has issued and the January 1, 2028 effective date stands — the prudent planning posture is to assume the tax arrives on schedule.

Do I pay Washington capital gains tax if I sell my house? Generally no. Direct sales of real property are exempt under RCW 82.87.050(1). If you sell an interest in an entity that owns real estate, the gain is exempt only to the extent it is directly attributable to real estate the entity owns directly (RCW 82.87.050(2)); the rest is taxable. Dealers holding property as inventory have ordinary income, which this tax never reaches.

How can I avoid or reduce the Washington State capital gains tax? The main legitimate levers are qualifying for the federal QSBS exclusion, changing domicile before the sale, using the real-estate exemption or the family-business deduction, timing the gain across tax years, and charitable or gifting strategies. Almost all of them must be in place before the sale closes.

When is the Washington capital gains tax due? Returns and payment are due annually with the federal filing deadline. For the 2025 tax year, returns and payment were due May 1, 2026 for all filers (a DOR extension tied to the December 2025 storms); that date has passed, and penalties and interest apply to unfiled returns. Taxpayers in the counties covered by the IRS's later August 5, 2026 postponement have a statutory argument under RCW 82.87.110(1) that their Washington deadline moved as well, but the DOR has not adopted it. A filing extension to October 15, 2026 remains available with a federal extension, but it did not extend the payment deadline.

What form do I use to file the Washington capital gains tax? There is no standalone paper form for most taxpayers. The Washington capital gains tax return is filed electronically through the DOR’s My DOR portal (or approved tax-prep software), with a copy of your federal return and supporting documentation attached. Payment must also be made electronically.

When did the Washington capital gains tax take effect? The tax took effect January 1, 2022. The Washington Supreme Court upheld it in Quinn v. State in 2023. The 9.9% tier on gains above $1 million was added by SB 5813 in 2025, retroactive to January 1, 2025.

Are QSBS gains subject to Washington's capital gains tax? Generally no. Washington piggybacks on federal capital gain as reported on the federal return, and Section 1202 excludes the qualifying gain before it reaches the federal return. But this is statutory conformity, not constitutional protection — SB 6229 in 2026 would have changed it, and similar legislation is likely to return.

Can I avoid Washington's capital gains tax by moving out of state? Possibly. For stock and other intangibles, the gain is allocated to Washington if you were domiciled here at the time of the sale (RCW 82.87.100(1)(b)), so domicile has to move before the sale closes. The 183-day statutory residency test in RCW 82.87.020 governs tangible personal property and feeds the 2028 income tax's resident definition, and in practice you change both. Late-stage relocations stand or fall on the documented facts of domicile.

Did Washington's capital gains tax survive court challenges? Yes. The Washington Supreme Court upheld the tax as a constitutional excise tax (not a property tax on income) in Quinn v. State, 1 Wn.3d 453 (2023). The U.S. Supreme Court denied certiorari in January 2024.

Have questions about your specific situation?

Joe Wallin is a startup and tax attorney with 25+ years of experience advising founders and investors on Washington tax planning, QSBS, and equity compensation. Book a free 20-minute call to discuss your situation.

This post is general information about Washington tax law, not legal or tax advice. Every situation is different — consult a qualified advisor before acting.