Washington Capital Gains Tax: What You'll Actually Owe

Run your own numbers first in the capital gains tax calculator, which handles Washington specifically along with federal brackets, the 3.8% net investment income tax and depreciation recapture.

How Washington treats capital gains

Washington has no general income tax, but since 2022 it levies a 7% excise tax on long-term capital gains above an annual threshold of roughly $250,000 per individual. Real estate is excluded.

Because the tax applies only above an annual threshold, spreading a gain across years can drop each year below it and eliminate the state tax entirely — an unusually clean planning outcome.

The three layers on a Washington sale

Most sellers budget for one tax and get hit with four:

1. Federal long-term capital gains at 0%, 15% or 20% depending on total taxable income for the year.
2. Net investment income tax of 3.8% once modified AGI passes $200,000 single or $250,000 married filing jointly. Those thresholds are not indexed for inflation, so more sellers cross them every year.
3. Depreciation recapture, if the asset was a rental or business property. The real-property portion is taxed at up to 25% as unrecaptured Section 1250 gain, and equipment is recaptured as ordinary income. See depreciation recapture.
4. Washington state tax of 7.0% on long-term gains above roughly $250,000 per year. Real estate is excluded.

The result on a large sale is around 30.8% on gains above the threshold.

Why the year matters more than the rate

Every one of those layers is triggered by income landing in a single tax year. The federal rate steps from 0% to 15% to 20% based on taxable income. The 3.8% surtax switches on at a fixed threshold. And for sellers 65 and older, the new $6,000 senior deduction phases out entirely once modified AGI reaches $175,000, or $250,000 filing jointly — a single large sale wipes it out completely.

Spreading the same gain across several years keeps each year's income lower, and each layer is calculated on that lower number. That is the entire mechanism behind an installment sale under IRC §453, and it is why two sellers with identical gains can pay very different totals.

Recapture is the exception: under §453(i) it is recognized in the year of sale regardless of how payments are structured.

Frequently asked

Q: What is the Washington capital gains tax rate? A: 7.0% on long-term capital gains above an annual threshold of roughly $250,000 per individual. Real estate sales are excluded from the tax.

Q: Does Washington have a lower rate for long-term capital gains? A: Washington taxes only long-term gains, and only above the annual threshold. Short-term gains are not subject to the excise tax.

Q: How do I calculate capital gains tax in Washington? A: Start with your sale price minus your adjusted cost basis, which is what you paid plus improvements minus any depreciation you took. That gain is then subject to federal capital gains rates, potentially the 3.8% net investment income tax, depreciation recapture if it was a rental, and Washington tax. The calculator on this site layers all four.

Q: Can I avoid Washington capital gains tax by moving before I sell? A: Residency changes are scrutinised closely and the facts matter a great deal, including where you lived at closing and whether the asset is real property physically located in the state. Real estate is generally taxed by the state where it sits regardless of where you live. Talk to a CPA before relying on this.