The Washington 7% tax on capital gains in excess of $250,000 went into effect January 1, 2022. During the year the courts ruled the tax as unconstitutional and invalid. The State has appealed the ruling to the Washington Supreme Court. While the appeal is pending the Department of Revenue was granted the authority to collect this tax with the first payments due on or before April 18, 2023. This tax will generally be imposed on Washington residents but could also apply to nonresidents.
A “capital asset” is defined in the same manner for the state as it is for federal income tax purposes. Long term capital gains (assets held more than one year) from the sale or exchange of stock, bonds, partnership interests, business assets, and other capital assets could be subject to this new law.
Gains from the sale of real property are specifically exempt and not taxable. These sales are subject to the real estate excise tax instead.
Gains from the sale of tangible personal property are considered taxable in Washington if the property was located in the state at the time of the sale or exchange. If the tangible personal property is not located in the state at the time of the sale or exchange, the gains could still be taxable if all three of the following conditions are met:
- The taxpayer was a resident at the time the sale or exchange occurred;
- The property was located in Washington at any time during the taxable year of sale or exchange or the immediately preceding taxable year; and
- The taxpayer is not subject to payment of an income or excise tax imposed on such capital gains or losses by another taxing jurisdiction.