In March of 2022, the Douglas County Superior Court ruled in Quinn v. State of Washington that the capital gains excise tax (ESSB 5096) does not meet state constitutional requirements and, therefore, is unconstitutional and invalid. The State has appealed the ruling to the Washington Supreme Court. While the appeal is pending, the agency was granted a stay of the Douglas County ruling. The stay does not resolve the issues surrounding the constitutionality of the capital gains tax, but it does preserve the agency’s ability to effectively administer and implement the tax and meet statutory obligations, including accepting tax payments, pending a final decision from the Washington Supreme Court. As a result, the online system is now available to report and pay the tax. If the Court eventually finds the statute to be unconstitutional, any tax payments received will be promptly refunded with interest.
The Department will continue to provide guidance to the public regarding the tax as a courtesy. Any guidance provided herein will apply only if the tax is ruled constitutional and valid, in its entirety, by a court of final jurisdiction.
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Yes. The department was granted a stay of the Douglas County ruling on the appeal of Washington’s capital gains tax. This means if you owe capital gains tax you must file a return and submit a payment by the April 18, 2023, deadline or you will incur interest and penalties.
If the Court eventually finds the capital gains tax to be unconstitutional, any tax payments received will be promptly refunded with interest.
Note: If you receive a filing extension for your federal income tax return, you may receive an extension for your capital gains tax return by submitting a request electronically through My DOR on or before the original due date. A filing extension does not extend the due date for submitting a payment.
No. Washington’s capital gains tax does not apply to the sale or exchange of real estate. It does not matter:
No. Washington’s capital gains tax does not apply to transactions through retirement savings accounts. This includes any transactions made through any of the following types of accounts:
Allocation is a way of assigning the long-term capital gain or loss generated by a transaction to a particular jurisdiction.
Allocating long-term capital gains and losses is important because, for example, an individual’s long-term capital gains that are allocated to a location other than Washington are not subject to the Washington capital gains tax.
Long-term capital gains are allocated to Washington as follows:
Exemptions from Washington’s capital gains are based on transactions. This means you may owe capital gains tax on some transactions and not on others.
No. Washington’s capital gains tax only applies to individuals. However, individual owners of entities that are pass-through or disregarded entities for federal tax purposes may owe Washington’s capital gains tax on gains from sales or exchanges made by such entities.
If you report payments for a sale on the installment method for federal tax purposes, you will report the long-term gain the same way for Washington’s capital gains tax. This means as you receive the installment payments.
Note: If the original sale took place before the effective date of Jan. 1, 2022, you do not owe Washington’s capital gains tax on any of the payments you receive.
You will generally owe Washington’s capital gains tax on a sale of cryptocurrency if you hold it for more than one year and you are domiciled in Washington at the time the sale or exchange occurs. Cryptocurrency is considered intangible property for purposes of the capital gains tax.
Many mutual fund distributions are distributions of interest or dividends, which are not subject to Washington’s capital gains tax.
However, if you receive capital gain distributions because the fund manager sold intangible assets that were held for more than one year, you may owe Washington’s capital gains tax. The same is true of capital gain that is retained in the fund and not distributed to you (these amounts are reported on box 1a of form 2439). Capital gain from your mutual fund is reported on Schedule D of your federal tax return and should be included in your Washington capital gains calculation.
No. Short-term losses are not included in the calculation of federal net long-term capital gain and cannot be used to offset long-term capital gain subject to Washington’s capital gains tax.
Washington’s capital gains tax only applies to the sale or exchange of assets that are held for more than one year. You do not owe capital gains tax on the sale or exchange of assets you held for a shorter period.