Washington’s capital gains tax is owed by individuals—not by a pass-through entity itself—when Washington-allocated, generally long-term capital gains remain above the annual deduction after applicable exemptions. For tax year 2025, the deduction is $278,000. Taxable gains up to $1 million are taxed at 7%; the portion above $1 million is taxed at a total marginal rate of 9.9% (the 7% base rate plus 2.9%). The 2025 return was due in 2026.
Who is subject to the tax?
The Department of Revenue (DOR) describes this as an individual tax. A corporation, partnership, limited liability company, or other pass-through or disregarded entity generally is not the taxpayer on its own return. However, a person who owns the entity can owe tax on that person’s Washington-allocated share of a gain reported through it.
A practical screening test is:
- You reported long-term capital gains on federal Schedule D for the year.
- The gains are allocated to Washington under the state’s sourcing rules.
- After transaction-specific exemptions and the annual standard deduction, taxable Washington gains remain.
DOR’s online “Do you owe capital gains tax?” questionnaire is informational, not a binding determination.
How the 2025 calculation works
The tax applies to taxable Washington capital gains after exempt transactions, deductions, and available credits. For tax year 2025, Washington uses these rates:
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|---|---|---|
| Up to and including $1,000,000 | 7% | The base rate applies to the first $1 million after deductions and exemptions. |
| More than $1,000,000 | 9.9% on the excess | The excess carries the 7% base rate plus an additional 2.9% beginning in tax year 2025. |
The annual standard deduction is $278,000 for 2025, according to Washington DOR. It is applied to taxable Washington gains after the relevant exemptions and deductions. Amounts and eligibility rules can change in later tax years.
Holding period matters
DOR generally applies the tax to assets held for more than one year. Short-term losses are not part of federal net long-term capital gain and cannot be used to offset taxable long-term gains for this Washington tax.
Which gains are allocated to Washington?
Allocation depends on the asset and the facts of the sale. Domicile is a legal and factual concept; a mailing address alone does not establish it.
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| Asset or gain | Washington allocation rule | Important qualification |
|---|---|---|
| Stocks, bonds, and other intangible personal property | Generally allocated to Washington when the individual was domiciled in Washington when the transaction occurred. | Residency analysis is fact-specific and is not determined solely by an address. |
| Tangible personal property, such as art or collectibles | Generally allocated to Washington when the property was in Washington at the time of sale. | Special conditions can apply if it was in Washington in the sale year or prior year but outside the state at sale. |
These sourcing rules mean that two sales in the same year can receive different treatment based on the asset’s location, the owner’s domicile, and the transaction facts.
What is exempt?
Exemptions are tied to particular assets or transactions, not automatically to everything a taxpayer sells. One sale can be exempt while another sale in the same portfolio is taxable.
| Exempt category identified by DOR | What it covers |
|---|---|
| Real estate | Gains from real property; DOR also identifies gains attributable to real estate owned by a privately held entity. |
| Certain retirement accounts | Assets held in qualifying retirement accounts. |
| Condemnation transactions | Assets subject to condemnation or sold under an imminent threat of condemnation. |
| Qualifying livestock | Certain farming or ranching livestock. |
| Qualifying trade or business assets | Business assets depreciable under federal law or eligible for federal expensing, when the statutory conditions are met. |
| Timber-related gains | Timber, timberlands, and specified related distributions from real estate investment trusts. |
| Commercial fishing privileges | Qualifying commercial fishing privileges. |
| Franchised auto-dealership goodwill | Goodwill from the sale of a franchised automobile dealership. |
An exemption does not remove the need to examine the rest of the taxpayer’s gains. Keep records showing why a particular transaction qualifies.
Deductions and credits that can reduce the bill
Qualified family-owned small business deduction
DOR lists a deduction for qualifying gains from selling all or substantially all of a qualified family-owned small business. Eligibility is limited; the deduction is not available merely because a business is small or family operated.
Charitable deduction
For 2025, a qualifying charitable deduction may be available for donations exceeding the $278,000 threshold, subject to eligibility limits and a $111,000 maximum deduction. These amounts are annually adjusted, so a later return may use different figures.
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Capital gains tax credit for B&O tax
For tax years 2022 through 2024, Washington allowed a credit for B&O tax paid on the same sale. Beginning in 2025, that provision was replaced by a capital gains tax credit equal to B&O tax paid on a sale or exchange that is also subject to the capital gains tax.
Tax paid to another jurisdiction
A separate credit may apply for qualifying income or excise tax paid to another jurisdiction. The credit has its own requirements and does not automatically apply to every out-of-state tax payment.
Do you owe tax if you sell real estate or use a retirement account?
DOR identifies real-estate gains and gains from assets in certain retirement accounts as exempt categories. The exemption concerns the qualifying transaction or account assets; it does not make unrelated stock, business, or collectible sales exempt.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Does a business entity owe the tax?
The legal taxpayer is the individual. A pass-through entity can report a gain that flows to an owner, and that owner may have a filing obligation after applying Washington allocation rules, exemptions, the standard deduction, and credits. The entity’s classification and the owner’s facts should be documented rather than assuming the entity or the owner is always exempt.
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When and how do people file?
An individual who owes files a Washington capital gains tax return and attaches a copy of the federal return for the same tax year. The due date generally matches the federal income-tax return due date.
- Prepare the federal return and identify net long-term capital gains.
- Determine which gains are allocated to Washington using domicile and property-location rules.
- Remove exempt transactions and apply permitted deductions, including the annual standard deduction.
- Calculate tax at the applicable 7% and, when relevant, 9.9% marginal rates.
- Apply available Washington and qualifying out-of-state credits.
- File the Washington return with the federal-return copy and pay the balance.
A taxpayer may request a Washington capital-gains extension through My DOR by the April 15 due date. An extension gives more time to file, not more time to pay; unpaid amounts can incur penalties and interest.
Prepayment beginning with tax year 2026
Under legislation effective June 11, 2026, DOR says taxpayers may prepay as early as six months before the payment due date. Its example allows a prepayment beginning October 15, 2026, for a return due April 15, 2027. Quarterly payments are not required under the cited DOR FAQ.
What changed for 2025 and 2026?
- ESSB 5813, Chapter 421, Laws of 2025: added 2.9% on annual Washington taxable capital gains above $1 million beginning with tax year 2025.
- SSB 5314, Chapter 409, Laws of 2025: replaced the prior B&O credit with the capital gains tax credit and clarified certain exemptions and calculations.
- HB 1376, Chapter 191, Laws of 2026: authorized prepayment up to six months before the filing deadline, effective June 11, 2026.
A concise decision checklist
- Did you report a long-term capital gain on federal Schedule D?
- Was the gain allocated to Washington based on your domicile or the property’s Washington location?
- Was the asset held more than one year?
- Is the specific sale exempt, such as qualifying real estate, retirement-account assets, or an eligible business asset?
- After exemptions and deductions, do Washington taxable gains exceed the 2025 standard deduction of $278,000?
- Does the gain exceed $1 million, triggering the additional 2.9% rate on the excess?
- Do B&O tax or qualifying taxes paid to another jurisdiction create a credit?
If the answers establish taxable Washington gains, file by the federal due date, attach the federal return, and pay by that date even if you request an extension.
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