Do I pay taxes when I sell my house in Washington State?

By TEAM NINE8

September 22, 2022

Editor’s note: This article has been updated for 2023’s most current information. An error was also corrected which didn’t correctly state that real estate is exempt from the Capital Gains Tax.

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.

Capital Gains Tax

In Washington, we are subject to capital gains tax on the sale of certain assets over $250,000 (or $500,000 for married couples filing jointly). However, gains from the sale of real estate have been exempted from this tax. This exemption applies regardless of how long you've owned the property, whether it was your residence, the property's location, its type (commercial or residential), or the ownership entity (individual, trust, or business).

Luckily, this is one tax that you do not have to worry about when selling your home.

Is the Washington excise tax in effect?

In short – yes, the Washington excise tax is in effect. This tax was facing a legal battle as Washington State Superior Court Judge Brian Huber struck down the tax as unconstitutional. The Washington State Supreme Court upheld the constitutionality of the state's capital gains tax in a 7-2 decision on March 24, 2023. The court found that the tax is an excise tax, not an income tax, and is therefore not subject to the state's one-percent property tax limit. The tax went into effect on January 1, 2022, and applies to long-term capital gains of more than $250,000 per person, $500,000 for married couples filing jointly.

Real Estate Excise Tax (REET)

The Real Estate Excise Tax (REET) is the main tax to consider when selling property in Washington. REET is levied on the sale of real estate property in the state, and its rate varies between 1.1% and 3.0% of the sales price. 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 selling a home in Seattle in Washington state for $525,000, the REET for 2023 will be 1.6% or $8,400. It's important to be aware of the REET and budget for it when selling a home in the state. Calculate the estimated Real Estate Excise Tax for your home using our helpful REET calculator.

Certain exemptions and deductions may apply to the REET, such as exemptions for affordable housing and transfers between family members. To determine if you qualify for any exemptions or deductions, consult with a tax professional.

Learn more about Washington's Real Estate Excise Tax (REET)

Who pays the Real Estate Excise Tax (REET), the seller or the buyer?

Almost always the seller is responsible for paying the Real Estate Excise Tax (REET). In some cases the buyer may choose to pay the Real Estate Excise Tax (REET) if it makes sense for the deal. If you specifically want this negotiated in the deal, make sure to discuss that early on.

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Reporting and Paying Real Estate Taxes

When it comes to reporting and paying real estate taxes, it's essential to understand the following:

Capital Gains Tax: Gains from the sale of real estate are exempt from the Capital Gains Tax in Washington State. You do not need to report or pay this tax on real estate transactions.
Real Estate Excise Tax (REET): If you are selling real estate in Washington, you will still be subject to the Real Estate Excise Tax (REET). Ensure that you calculate and budget for this tax when selling your property. 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.

If Unsure, Seek Legal Guidance

While this guide provides an overview of real estate taxes in Washington State, it's essential to keep in mind that tax laws can change over time. If you have any specific questions or concerns about your real estate transaction, seek advice from a qualified tax professional. They can provide you with personalized guidance and ensure compliance with current tax regulations.

Selling your home can be a complex process, but you don't have to navigate it alone. At Nine8 Redevelopment, we specialize in buying homes quickly in various areas of Washington State. We purchase homes in any condition, eliminating the need for cleaning, repairs, or showings. Let us help you simplify the process and provide you with valuable resources, including tax-related information. Contact us today to explore your options for selling your Washington home.

Please note that while we strive to provide accurate and up-to-date information, it's advisable to consult with tax professionals or government authorities for the latest tax regulations and exemptions.