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Home » Budget » State budgets » 2021-23 Gov. Inslee's proposed budgets » Budget highlights » Revenue changes » 9% capital gains tax on individuals - 21-23 budget proposal

9% capital gains tax on individuals - 21-23 budget proposal

Prepared by the Department of Revenue

Summary of proposed legislation

This proposal would tax individuals on the sale or exchange of capital assets they have held for more than one year, unless an exemption applies. Capital assets are assets owned for investment or personal reasons and are not usually sold in the course of business.

The tax would equal 9 percent of your Washington capital gains.

You would be required to pay capital gains tax if your taxable capital gains exceed:

  • $25,000 for individuals who are not joint filers.
  • $50,000 for individuals filing joint returns.

Exemptions are provided for:

  • Sole proprietor income.
  • Residential real estate sales.
  • Retirement accounts.
  • Assets the government seizes under eminent domain, or assets you sell or exchange under threat of eminent domain.
  • Cattle, horses, or breeding livestock you (the farmer) hold for more than 12 months, and more than 50 percent of your gross income is from farming or ranching for the year of the sale or exchange.
  • Agricultural land if you (the owner) has regular, continuous, and substantial involvement  in the agricultural operation by meeting the criteria under Internal Revenue Code (IRC) section 469(h) for the 10 years prior to the date of the sale or exchange.
  • Depreciable business property you use in a business that qualifies for an income tax deduction (IRC sections 167 or 179).
  • Timber, timberland, or dividends or distributions from real estate investment trusts derived from gains from the sale or exchange of timber.

If you pay capital gains tax to another jurisdiction on a taxable sale or exchange of a capital asset located in the other jurisdiction, you may take a credit on your Washington return up to the amount of tax you already paid.

To avoid paying both capital gains tax and business and occupation (B&O) tax on gains from the sale or exchange of capital assets, you may take a B&O tax credit for the full amount of B&O tax due on a sale or exchange of capital assets that are also subject to the capital gains tax.

You must report and pay capital gains tax at the same time you file your federal income tax return. If you receive a filing extension for your federal taxes, you will also receive a filing extension for your state capital gains tax. However, you must still pay the tax due on your original filing date.

This proposal is effective January 1, 2022, with the first capital gains tax return due April 15, 2023.

Current law

No capital gains tax currently exists in Washington at the state or local level.

Revenue impact

This proposal impacts approximately 58,000 taxpayers and will impact the state general fund in the following ways:

 

FY 2022

FY 2023

FY 2024

FY 2025

Capital Gains Tax

$0

$1,287,000,000

$1,371,000,000

$1,403,000,000

B&O Tax

$0

($160,000,000)

($170,000,000)

($174,000,000)

Fiscal Year Total

$0

$1,127,000,000

$1,201,000,000

$1,229,000,000

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