Washington State Enacts New Capital Gains Tax
The Washington State Legislature passed a new capital gains tax on April 25, 2021, which will take effect on January 1, 2022, and the first payment are due on or before April 17, 2023. This tax creates a 7% tax on the sale or exchange of long-term capital assets, if the profits exceed $250,000 annually. It applies to individuals for gains allocated to Washington state and can also be applicable to individuals’ ownership interest in an entity that sells or exchanges long-term capital assets.
Exempt assets
The sale or exchange of the following assets are exempt from the Washington capital gains tax:
- Real estate
- Interests in a privately-held entity to the extent that the capital gain (loss) is directly attributable to the real estate owned directly by such entity
- Assets held in certain retirement accounts
- Assets subject to condemnation, or sold or exchanged under imminent threat of condemnation.
- Assets used in a trade or business to the extent of the exhaustion, wear and tear of property or qualify for expensing under Title 26 U.S. code § 179 of the internal revenue code
- Please see the Department of Revenue Washington State website for other exempt assets.
(https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax)
Credits
- A business and occupation (B&O) tax credit is included for B&O taxes due on the same sale or exchange which is subject to the Washington capital gains tax.
- A Washington capital gains tax credit is included for any legally imposed income or excise tax owed to other jurisdictions on capital gains included within the individual's Washington capital gains.
written by Sean Jeong