Key Takeaways
- Retroactively, starting January 1, 2025, gains over $1 million in Washington state will face a 9.9% state capital gains tax, up from 7%.
- As of July 1, 2025, the estate tax exemption increases to $3 million, but estates over $8.8 million will pay higher rates.
- A proposed wealth tax on stocks and bonds stalled in 2025, but legislative interest remains strong.
Washington concluded an eventful legislative session with the largest set of tax increases in the state's history. This Update focuses on two significant changes that affect Washington residents and a senate bill proposal that did not pass this session but seems likely to be considered in the future.
Washington Capital Gains Tax
Since 2022, Washington residents have been subject to a 7% tax on long-term gain from the sale of certain assets after considering any exemptions and deductions. Effective retroactively to January 1, 2025, Washington will impose an additional 2.9% tax on capital gains exceeding $1 million. Up to $1 million of capital gains will be taxed at the existing rate of 7%, and capital gains more than $1 million will be subject to a capital gains tax rate of 9.9%.
Washington Estate Tax
Under existing Washington law, each individual has a $2.193 million exemption amount applicable to their estate, meaning the first $2.193 million of assets in an individual’s estate are not subject to Washington estate tax. Assets in excess of the $2.193 million exemption amount are subject to Washington estate tax on a graduated scale from 10% to 20% depending on how much an estate is over the exemption amount.
New legislation increases this $2.193 million exemption to $3 million and effectively indexes the exemption amount for inflation. This increased exemption amount is effective as of July 1, 2025. While the increased exemption amount will be beneficial for most Washington taxpayers, the legislation increases the marginal tax rates for estate tax, affecting larger estates. The legislation includes the following tax rate table which applies to the taxable estate (the taxable estate is the overage of the estate from the exemption amount):
|
If Washington Taxable Estate Is at Least |
But Less Than |
The Amount of Tax Equals Initial Tax Amount |
Plus Tax Rate % |
Of Washington Taxable Estate Value Greater Than |
|---|---|---|---|---|
| $0 | $1 million | $0 | 10% | $0 |
| $ 1 million | $2 million | $100,000 | 15% | $1 million |
| $2 million | $3 million | $250,000 | 17% | $2 million |
| $3 million | $4 million | $420,000 | 19% | $3 million |
| $4 million | $6 million | $610,000 | 23% | $4 million |
| $6 million | $7 million | $1.07 million | 26% | $6 million |
| $7 million | $9 million | $1.33 million | 30% | $7 million |
| $9 million |
- |
$1.93 million | 35% | $9 million |
Under the new estate tax landscape, Washington decedents with a taxable estate greater than $8.8 million will be subject to a higher estate tax.
For larger estates, Washington estate tax is assessed in addition to federal estate tax. The federal estate tax is levied at 40% for taxable estates over $13.99 million for 2025, though state estate tax paid can be deducted against federal estate taxes. Estates that will be subject to both federal and Washington estate tax will face a combined marginal tax rate of about 61%. Washington residents with taxable estates will benefit from proactive estate planning to help mitigate some of the estate tax impacts.
Proposed Washington Wealth Tax
Engrossed Substitute Senate Bill (ESSB) 5797 would have imposed a 0.5% ($5 per $1,000) financial intangibles (wealth) tax on the value of publicly traded stocks, publicly traded bonds, mutual funds, and exchange-traded funds “owned or controlled” by a Washington resident. The first $50 million of taxable assets would have been exempt from the tax. The Washington Senate passed ESSB 5797 on the last day of the legislative session in a 26-21 vote. The Washington House of Representatives failed to move a similar house bill out of committee and did not have time to consider the senate bill. The wealth tax proposals lost momentum when Governor Bob Ferguson expressed opposition to the use of the wealth tax to balance the state budget.
While the wealth tax stalled this session, there appears to be support for a wealth tax in the Washington legislature.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
