Washington's capital gains tax: 9.9% on stock, 0% on property
The mechanics of the excise tax, the 2025 surcharge, and the exemption that makes real estate the tax-favored asset class in this state.
The mechanics
Washington taxes long-term capital gains realized by individuals above a standard deduction (about $270,000, indexed annually) at 7%. In 2025 the legislature added 2.9% on gains above $1 million in a single year. The tax is an excise on the sale, filed with your state return. It survived its court challenge in 2023.
What is exempt
Real estate, in full: land and structures, whether a home, a rental, or bare land. Retirement accounts are also exempt, along with certain small-business and other statutory carve-outs.
A worked example
A Bellevue director sells $1.8M of appreciated Microsoft stock with a $1.5M long-term gain:
- Federal: roughly 23.8% at the top (20% long-term rate plus 3.8% net investment income tax), about $357K
- Washington: 7% on the band above ~$270K up to $1M, then 9.9% above $1M, about $100K
- Total near $457K, or about 30% of the gain.
The same household selling a rental property with a $1.5M gain owes Washington nothing, and a 1031 exchange can defer the federal side as well.
The strategic consequence
For most equity-heavy households, diversification out of concentrated stock is going to happen eventually. The destination now matters. Gains built in Washington real estate are outside this tax under current law; gains built in a brokerage account are inside it. Over ten to twenty years on the Eastside, the difference compounds meaningfully.
Where I fit
I handle the property side of the rotation: which submarkets, which asset type (long-term rental, short-term rental with cost segregation, waterfront hold), what realistic yield looks like, and how to buy without overpaying. Your CPA models the tax. I execute the real estate.
This is not tax or legal advice. Aditya Kasturi is a licensed real estate broker, not a CPA, attorney, or financial advisor. Figures are illustrative, based on Washington and federal law as understood at the time of writing, and laws change. Confirm any strategy on this page with your CPA and, where relevant, your estate planning attorney before acting.
Common questions
Does Washington's capital gains tax apply to selling my home here?
No. Sales of real estate are exempt from the Washington capital gains excise tax at any price. Federal rules, including the primary-residence exclusion, still apply. Confirm the details with your CPA.
Can I time gains across tax years?
Often, yes. Spreading sales across years keeps more of the gain under the annual deduction and the $1M surcharge line. Your CPA models the tranches; the review covers where property fits between them.
Are there alternatives like charitable structures or Opportunity Zones?
Both exist and can reduce or defer the tax in the right circumstances. They are advisor-led decisions; discuss them with your CPA. Where a strategy involves buying property, that part is my job.