Frequently asked questions about Washington’s capital gains tax

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:

• How long the seller owned the property.
• Whether the seller occupied the property.
• Where the property is located.
• What type of property it is (commercial or residential).
• Who owns the property (individual, trust, or business).

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:

• 401Ks Tax sheltered annuities.
• Deferred compensation plan.
• IRA.
• ROTH IRA.
• Employee defined contribution plan.
• Employee defined benefit plan.
• Similar retirement savings 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:

• For intangible personal property such as stock or bonds, gains are allocated to Washington if the individual is domiciled in Washington at the time the sale or exchange occurred.
• For tangible personal property such as art or collectibles, gains are allocated to Washington if either of the following are true:
  • The property was located in Washington at the time of sale.
  • The property was not located in Washington at the time of sale but all of the following are true:
    • The property was located in Washington in the same year or the year before the sale took place.
    • The individual was a Washington resident at the time of the sale.
    • The sale was not subject to an income or excise tax by another jurisdiction.

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.