Washington Capital Gains Tax: What You'll Actually Owe
Washington's capital gains tax works differently from every other state, and the difference is worth real money if you plan around it.
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.
Washington capital gains calculator
Federal brackets, the 3.8% net investment income tax, depreciation recapture and Washington state tax — all four layers.
What is the tax bill on your Washington sale going to be?
Send me the sale price and rough basis and I'll email you the actual number within one business day — plus the Seller's Guide to §453. If it doesn't fit your deal, I'll tell you that plainly.
No retainer · no obligation · the carrier compensates the broker, not you.
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 standard deduction of $278,000 for 2025 (indexed each year). 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:
- Federal long-term capital gains at 0%, 15% or 20% depending on total taxable income for the year.
- 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.
- 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.
- Washington state tax of 7.0% on long-term gains above the $278,000 annual standard deduction (2025, indexed). 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 begins phasing out at $75,000 of modified AGI ($150,000 joint) and is fully gone by roughly $175,000 ($250,000 joint) — 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.
What this actually costs: Washington numbers
Take a $500,000 long-term gain, on top of $200,000 of other income, married filing jointly.
That is roughly 27% of the gain. But Washington's tax applies only above the annual threshold, so the state portion is not inevitable — it depends entirely on how much gain lands in one year.
Add depreciation recapture if the asset was ever a rental or business property and the number climbs again — up to 25% on the real-property portion, ordinary rates on equipment.
The four layers, in the order they hit you
1. Federal capital gains. 0%, 15% or 20%, decided by your total taxable income for the year — including the gain itself. That is why one large sale lands people in the 20% bracket who normally sit far below it.
2. The 3.8% net investment income tax. Switches on above $200,000 modified AGI single, $250,000 married filing jointly. Those thresholds have never been indexed for inflation, so each year quietly captures more sellers.
3. Depreciation recapture. Only if you depreciated the asset. The real-property portion is unrecaptured Section 1250 gain at up to 25%; equipment is Section 1245 recapture at ordinary rates. This layer cannot be spread — §453(i) requires it in the year of sale.
4. Washington tax. of 7.0% on long-term gains above the $278,000 annual standard deduction (2025, indexed). Real estate is excluded.
Who Washington can tax, and on what
- Real property is taxed where it sits. If the property is physically in Washington, Washington taxes the gain whether or not you live there. Moving does not help you on in-state real estate.
- Everything else generally follows residency on the date of sale — business interests, stock, collectibles.
Washington does not withhold at closing, and the excise tax is self-reported with your annual return. Sellers miss it constantly because nothing at closing reminds them.
Does spreading the sale help in Washington?
More than almost anywhere else. The excise tax applies only to gains above the $278,000 annual standard deduction. Split a $500,000 gain across two years and each year's $250,000 falls under it — which does not reduce the state tax, it eliminates it. Worth $15,540 here.
An installment sale under IRC §453 spreads the gain across the years you actually receive payments, so every threshold above is tested annually instead of once.
The trade-offs deserve stating plainly: you need a buyer willing to pay over time, you carry collection risk, recapture still lands in year one, and large installment balances can trigger an interest charge under §453A. It fits some sales and not others, which is exactly what a conversation before closing is for.
Find out what your sale is really going to cost you in tax — and what you can do about it
No retainer. The carrier compensates the broker — not you.
Find out what your tax bill actually looks like before you sell — including the parts your CPA may not raise until the return is already being prepared.
Most people find out what they owe after the sale closes, when nothing can be changed. A short conversation now tells you the number, which layers apply to your situation, and which options are still open while the sale is still in front of you.
- What you will actually owe — federal, the 3.8% surtax, recapture and your state
- Which of those layers you can still do something about
- Whether spreading the sale changes the number in your case
Hans Goldstein · 317-463-6659 · Goldstein & Co. LLC · This is an educational conversation, not tax advice. Bring your CPA in before you file.
Frequently asked
Q: What is the Washington capital gains tax rate? A: 7.0% on long-term capital gains above an annual standard deduction of $278,000 for 2025 (indexed each year). 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.
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Run your specific numbers
The calculator runs your sale through real 2026 federal + state tax brackets and shows §453 savings vs lump sum side-by-side.
Run the calculator → 317-463-6659