By Tony Delane, CFP®, AIF®, Wealth Advisor
Washington state’s capital gains tax has evolved into one of the most complex and consequential pieces of state tax law for high-net-worth individuals. With tiered rates, nuanced exemptions, and strict residency rules, it’s no longer just a line item—it’s a planning priority.
In this article we’ll walk through its history, mechanics, and some real-world examples.
A Quick History of Washington’s Capital Gains Tax
Washington has long been known as one of the few states that does not levy a personal income tax on its residents. State revenue primarily comes from sales tax, property tax, and business taxes. Over the years, there have been numerous attempts to amend the state constitution to allow an income tax and none have been successful.
However, in 2021, the state legislature fast-tracked this Capital Gains Tax, which has a narrow scope but a potentially large impact, which proper planning can help to mitigate. After legal challenges, the Washington Supreme Court upheld the tax in 2023, affirming it as an “excise tax”—not an income tax.
In 2025, the law added a tiered structure:
- 7% on gains up to $1 million (after the Standard Deduction, which is $278K in 2025)
- 9% on gains above $1 million
Rather than being used for general purposes, the revenue from this tax is earmarked to exclusively support education and childcare programs in Washington state. According to the Washington State Budget & Policy Center, dedicated spending from FY 2023-2025 totaled $386M.
What’s Taxed in Washington—and What’s Not
The tax applies to individuals, not corporations, and only to long-term capital gains (assets held longer than one year). This is important to note because short-term losses (from tax loss harvesting) will not offset the long-term gains.
Assets that may be subject to the Capital Gains Tax include stocks, bonds, mutual funds, certain business interests, cryptocurrency, and tangible personal property located in Washington. There are exemptions in place, including real estate, retirement accounts (401k, IRA), and some other miscellaneous investments.
Residency and Domicile: The Deciding Factor
Washington taxes gains from intangible assets like stocks if you’re domiciled in the state—even if the sale occurs elsewhere. For tangible assets, both location and residency matter. Domicile means your permanent home—the place you intend to return to.
You’re considered domiciled unless:
- You don’t maintain a home in Washington,
- You do maintain a home elsewhere, and
- You spend fewer than 30 days in Washington.
Even if the sale of a tangible asset occurs in another state, you are likely still subject to the tax if no other jurisdiction taxed the capital gain. However, if another state taxes that gain, you might qualify for a credit.
3 Real-World Examples of Washington’s Capital Gains Tax
1. Tech Employee with RSUs
A Microsoft employee sells $2M of stock earned from RSUs (restricted stock units). Cost basis is $500K.
- Standard deduction: $278K
- Taxable gain: $1.222M
- Tax owed:
- First $1M at 7% = $70,000
- Remaining $222K at 9.9% = $21,978
- Total WA tax: $91,978. This is in addition to any federal taxes owed.
To diminish the impact of the tax, this individual could consider spreading stock sales across a series of years to stay under the $1M and/or $278K thresholds.
2. Home Sale
A homeowner sells their home for $1M. Cost basis is very low as they purchased it 20 years ago.
- There is presently no Washington state capital gains tax applied to the sale of a primary residence. No WA State capital gains tax is levied in this scenario.
3. Car Collector
Scenario: A Bellevue resident sells a classic car for $600K. The cost basis is $100K.
- If the vehicle was located in Washington and the seller was domiciled there, the gain is taxable.
- Standard Deduction: $278K
- Taxable Gain: $222K
- $222K at 7% = $15,540. This is in addition to any federal taxes owed.
Consult a Financial Advisor to Help Address Washington’s Capital Gains Tax in Your Plan
Washington’s capital gains tax is no longer just a footnote—it should be a core part of planning efforts for those who may be affected. With tiered rates, strict residency rules, and unique exemptions, it requires proactive strategizing and documentation.
If you’re a resident of the state facing a major asset sale or want to review your exposure, please reach out. We can help you evaluate your options and build a plan that aligns with your goals.
Learn more about Halbert Hargrove’s Bellevue location.
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