Estate tax treatment of real property owned by business entities

The Department of Revenue administers the Washington estate tax. This article provides guidance on determining Washington tax due for an estate of a decedent with ownership interests in business entities that hold real property.

A business entity is considered an intangible asset for estate tax purposes even when it owns real estate. The real estate is not separated from the business entity when determining tangible versus intangible status. Limited liability companies (LLCs) and corporations are both forms of business entities treated as intangible assets.

Washington’s estate tax is imposed on every transfer of real or tangible personal property located in Washington. The location of intangible personal property is determined as follows:

• For a decedent domiciled in Washington on the date of their death, intangible personal property is considered located in Washington.
• For a decedent domiciled outside of Washington on the date of their death, intangible personal property is considered located outside of Washington.

When property in the decedent's estate is located outside of Washington, the amount of tax is first determined on all assets regardless of location. Then the tax is multiplied by a fraction to determine the amount of Washington tax due. The numerator of the fraction is the value of all property located in Washington. The denominator of the fraction is the value of the decedent’s gross estate.