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New reporting instructions for first mortgage interest
Issue Date
What’s new?
Beginning July 1, 2026, you will report income from first mortgages and deeds of trust, and the related deduction under new classifications on your excise tax return.
Additionally, high-volume mortgage lenders and their affiliates may not deduct amounts received from interest on loans secured by first mortgages or trust deeds on non-transient residential properties.
How do I report income from first mortgage interest?
For periods prior to July 1, 2026, you will report income from first mortgage interest under the business and occupation (B&O) tax classifications in the table below based on gross income subject to the Service and Other Activities classification(s) in the prior calendar year.
For periods after June 30, 2026, you will report income based on your combined income reported under the Service and Other Activities and First Mortgage Interest classifications for the prior year.
| For reporting periods ending before July 1, 2026 | For reporting periods starting on or after July 1, 2026 | Rate |
|---|---|---|
| Service and Other Activities (Less than $1,000,000 in the prior year) | First Mortgage Interest (Less Than $1,000,000 in the prior year) | 1.5% |
| Service and Other Activities ($1 million to $4,999,999.99 in the prior year) | First Mortgage Interest ($1,000,000 to $4,999,999.99 in the prior year) | 1.75% |
| Service and Other Activities ($5 million or more in the prior year) | First Mortgage Interest ($5 million or more in the prior year) | 2.1% |
How do I take a deduction for first mortgage interest?
If you are not a high-volume mortgage lender, you may use the new “Low‑Volume Lender Mortgage Interest” deduction to deduct interest on loans secured by first mortgages or deeds of trust.
What is a high-volume mortgage lender?
A person is a high-volume mortgage lender if either:
- They are a specified financial institution as defined in RCW 82.04.29004.
- They have an annual closed mortgage origination volume of at least $10 billion, as reported under the federal Home Mortgage Disclosure Act (HMDA) for the previous calendar year.
How do I report interest from other loans and investments?
You will continue to report interest from other loans and investments under the Service and Other Activities B&O tax classification(s).
How does this affect my annual reconciliation of apportionable income?
When completing the annual reconciliation of apportionable income, you will combine the amounts reported under the Service and Other Activities and First Mortgage Interest Income classifications.
Definitions
"Affiliate" has the same meaning as in RCW 82.04.645.
"Interest" has the same meaning as in RCW 82.04.4292 and also includes amounts received for servicing loans as described in RCW 82.04.4292(4).
Additional resources
RCW 82.04.290 Tax on service and other activities
RCW 82.04.29004 Additional tax on financial institutions
RCW 82.04.29005 Tax on loan interest
RCW 82.04.4292 Deductions-Interest on investments or loans secured by mortgages or deeds of trust
Substitute House Bill (SHB) 2089, Chapter 131, Laws of 2026
Questions?
Call 360-705-6705.