Capital gains taxes can have a significant impact on your investment returns, and it’s crucial to understand how they are taxed, especially in Washington State. If you’re planning to sell investments in the coming years, understanding the potential tax implications will help you manage your financial future effectively. Here’s a breakdown of Washington’s capital gains tax in 2025 and how you can optimize your tax planning strategies.
What Are Capital Gains?
Capital gains represent the profit you make from the sale of a capital asset—such as stocks, real estate, or other valuable property. These assets increase in value from the price you paid for them.
There are two types of capital gains:
- Realized Capital Gains: These occur when you sell an asset and “lock in” the gain, meaning you are required to pay taxes on it.
- Unrealized Capital Gains: These are gains that exist on paper because the asset has increased in value, but you haven’t sold it yet. Taxes are not due until you actually sell the asset.
Long-Term vs. Short-Term Capital Gains
Capital gains are also taxed differently depending on how long you’ve held the asset:
- Short-Term Capital Gains: If you sell an asset within one year of purchase, the gain is considered short-term, and it is taxed at the same rates as ordinary income.
- Long-Term Capital Gains: If you hold an asset for longer than one year before selling, the gain is considered long-term and generally benefits from lower tax rates.
Federal Capital Gains Tax (2025)
Short- and long-term capital gains are taxed differently; assets held for one year or less are taxed at ordinary income rates, while longer-held assets are taxed at lower rates.
The short-term capital gains schedule matches the schedule for ordinary income, and your marginal and effective rates depend on your income and marital status, as shown below:
| Taxable income(Single Filers) | Taxable income (Married Filing Jointly) | Tax Rate |
| $0 to $11,925 | $0 to $23,850 | 10% |
| $11,925 to $48,475 | $23,850 to $96,950 | 12% |
| $48,475 to $103,350 | $96,950 to $206,700 | 22% |
| $103,350 to $197,300 | $206,700 to $394,600 | 24% |
| $197,300 to $250,525 | $394,600 to $501,050 | 32% |
| $250,525 to $626,350 | $501,050 to $751,600 | 35% |
| $626,350 or more | $751,600 or more | 37% |
Long-term capital gains, meanwhile, are taxed at a lower rate than ordinary income. Here, too, the precise rate depends on the individual’s income and marital status:
| Taxable income (Single Filers) | Taxable income(Married Filing Jointly) | Tax Rate |
| $0 to $48,350 | $0 to $96,700 | 0% |
| $48,350 – $533,400 | $96,700 – $600,050 | 15% |
| $533,400 or more | $600,050 or more | 20% |
In addition, some categories of capital assets fall entirely outside of this rubric: gains on collectibles such as art, jewelry, antiques, and stamp collections are taxed up to a maximum 28% rate.
Additionally, the Net Investment Income Tax (NIIT) of 3.8% applies to high-income individuals, specifically those earning over $200,000 (single) or $250,000 (married).
Washington’s Capital Gains Tax in 2025
Washington has a unique tax policy when it comes to capital gains. As of 2025, the state levies a tax of 7% on capital gains exceeding $250,000. This means that if you sell assets and realize a gain over this threshold, you’ll be subject to the state’s capital gains tax.
However, Washington has a progressive tax system with a 0% rate for gains up to the $278,000 threshold (adjusted for inflation), meaning you won’t owe any tax on gains under this amount. If your capital gains exceed this threshold, the portion over $278,000 will be taxed at 7%.
Case Study: How Capital Gains Tax Applies in Washington
Let’s illustrate this with a case study of Jenna, an investor in Washington. She purchased 7,000 shares of Apple stock in April 2019 at $50 per share. By January 2025, the stock price has increased to $100 per share, and Jenna decides to sell. Her realized capital gain would be $350,000.
- Federal Taxes: Jenna’s $350,000 in long-term capital gains falls into the 15% tax bracket for federal taxes. After subtracting the amount not taxed (the first $48,350 of her gains), Jenna would owe $46,440 in federal capital gains taxes. Additionally, because her gains exceed $200,000, she would also owe the 3.8% NIIT on the excess amount, resulting in an additional $6,080 in taxes. Her total federal tax liability would therefore be $52,828.
- Washington State Taxes: Given that Jenna’s capital gains exceed $278,000, she would fall into the 7% state tax bracket for her $350,000 gain. After applying the 0% tax rate on the first $278,000, the remaining $72,000 would be taxed at 7%, which would result in $5,040 in state taxes.
Strategies to Reduce Capital Gains Taxes
Capital gains taxes can significantly reduce the amount you keep from your investment profits. However, with proper planning, you can minimize your tax liability. Here are several strategies to consider:
- Charitable Remainder Trust (CRT): You can defer capital gains taxes by moving appreciated assets into a CRT. A CRT is a tax-exempt trust that allows you to receive income for a specified term while deferring taxes on the asset’s appreciation. The charity receives the principal after the trust term ends.
- Invest in Renewable Energy: Purchasing renewable energy projects can make you eligible for significant tax incentives, such as tax credits and depreciation, which can lower your overall tax liability and reduce your capital gains tax.
- Oil and Gas Investments: Oil and gas wells often offer substantial tax benefits, including the ability to deduct drilling costs upfront, potentially recouping a significant portion of your investment in tax savings during the first year.
- Maximize Retirement Contributions: Contributing to retirement accounts such as IRAs or 401(k)s can reduce your taxable income, helping lower your capital gains tax liability.
- Charitable Lead Annuity Trusts (CLATs): A CLAT allows you to donate a portion of your assets to charity, while receiving an upfront tax deduction. This strategy can reduce both your taxable income and capital gains tax while supporting causes you care about.
Conclusion
While Washington’s capital gains tax system provides a progressive structure that can benefit many investors, it’s important to understand the tax implications of your investments. With no tax on capital gains under $278,000 and a 7% tax rate on amounts over that threshold, Washington’s approach offers some relief compared to other states. However, for larger gains, state taxes can still add up, and federal taxes will also apply.
By using tax planning strategies such as investing in renewable energy projects, utilizing Charitable Remainder Trusts, and maximizing retirement contributions, you can reduce your overall tax burden and retain more of your investment returns. Always consult with a tax professional to determine the best strategy for your unique financial situation.
Understanding Washington’s capital gains tax in 2025 and taking action now will allow you to make more informed decisions, reduce your tax liability, and maximize the potential of your investments.