Washington State has one of the most complex and highly scrutinized capital gains tax structures in the country. Unlike most states that tax capital gains as part of income tax systems, Washington has no state income tax—yet it imposes a separate 7% state-level capital gains tax on certain high-value transactions. Enacted in 2022 and upheld by the Washington Supreme Court, this tax continues to impact investors selling stocks, businesses, and other assets. In 2025, the Washington capital gains tax still applies in addition to federal tax, making it essential for residents and business owners to understand how the rules work.
This guide explains what the Washington capital gains tax is, which transactions are subject to it, which exemptions apply, and strategies to plan around it.
What Are Capital Gains?
Capital gains occur when you sell an asset—such as stocks, real estate, cryptocurrency, or business interests—for more than your purchase price.
Only realized gains (after selling) are taxed. Unrealized gains do not trigger tax.
Short-Term vs. Long-Term Capital Gains
For federal purposes:
- Short-term capital gains: Held one year or less, taxed at ordinary income rates.
- Long-term capital gains: Held more than one year, taxed at reduced federal long-term rates.
Washington’s capital gains tax only applies to long-term capital gains, and only certain types of assets are taxable.
Federal Capital Gains Tax (2025)
Short-Term Capital Gains
Taxed at federal ordinary income rates:
| Taxable Income (Single) | Taxable Income (Married Joint) | Rate |
|---|---|---|
| $0–$11,925 | $0–$23,850 | 10% |
| $11,925–$48,475 | $23,850–$96,950 | 12% |
| $48,475–$103,350 | $96,950–$206,700 | 22% |
| $103,350–$197,300 | $206,700–$394,600 | 24% |
| $197,300–$250,525 | $394,600–$501,050 | 32% |
| $250,525–$626,350 | $501,050–$751,600 | 35% |
| $626,350+ | $751,600+ | 37% |
Long-Term Capital Gains
| Taxable Income (Single) | Taxable Income (Married Joint) | Rate |
|---|---|---|
| $0–$48,350 | $0–$96,700 | 0% |
| $48,350–$533,400 | $96,700–$600,050 | 15% |
| $533,400+ | $600,050+ | 20% |
Federal rules also include:
- Depreciation recapture: 25%
- Collectibles: up to 28%
- Net Investment Income Tax (NIIT): 3.8% on incomes above
- $200,000 (single)
- $250,000 (married joint)
Washington Capital Gains Tax in 2025
Washington imposes a 7% capital gains tax on certain long-term capital gains.
This is not an income tax under state law—it is considered an excise tax on the sale of specific assets.
Key Features of Washington’s Capital Gains Tax
- Tax rate: 7%
- Applies only to long-term capital gains
- Applies above a $250,000 annual exemption (indexed for inflation)
- Applies only to certain asset types
Assets Subject to the Washington Capital Gains Tax
The tax applies primarily to sales of:
- Stocks
- Bonds
- Mutual funds
- Certain business interests
- Investment assets held for more than one year
Exemptions and Non-Taxable Assets
Washington does NOT tax gains from:
- Real estate sales
- Retirement accounts
- Livestock sales
- Timber
- Qualified business sales by small businesses
- Assets held in certain trusts
- Certain tangible personal property
- Certain family-owned small business sales (if qualifications are met)
Because real estate is exempt, Washington investors selling property do not owe state capital gains tax, though federal tax still applies.
Annual Exemption Amount
Washington provides an annual exemption of:
- $250,000 per taxpayer
- Married couples filing jointly share the same exemption
Only gains above this amount are subject to the 7% tax.
Effective Washington Capital Gains Tax Rate
For larger stock or business sales, the effective rate generally becomes:
- 7% state capital gains tax, plus
- Federal long-term capital gains tax (15%–20%), plus
- NIIT (3.8%) if income thresholds are met
Combined, top-end taxpayers may see capital gains tax rates exceeding 35% on certain transactions.
Case Study: Washington Capital Gains Example
Scenario:
Jordan, a Washington resident, bought 10,000 shares of stock at $30 in 2019 and sells them in 2025 for $90.
Total gain:
10,000 × $60 = $600,000
Step 1: Federal Taxes
Jordan falls into the 15% federal long-term bracket:
- Federal long-term tax:
$600,000 × 15% = $90,000
NIIT applies to $350,000 of the gain:
- NIIT:
$350,000 × 3.8% = $13,300
Total federal tax: $103,300
Step 2: Washington Capital Gains Tax
Washington exemption: $250,000
Taxable gain:
$600,000 − $250,000 = $350,000
State tax:
$350,000 × 7% = $24,500
Total Tax Liability
- Federal: $103,300
- Washington: $24,500
- Total: $127,800
Washington’s tax adds a meaningful layer to capital gains planning.
Strategies to Reduce Capital Gains Taxes in Washington
1. Use the $250,000 Exemption Strategically
Spread sales across multiple years to maximize exemption usage.
2. Prioritize Asset Types Exempt from Tax
Real estate and retirement account gains are not subject to Washington’s capital gains tax.
3. Evaluate Qualified Small Business Exemption
Certain business sales may qualify for a full Washington exemption.
4. Utilize Tax-Loss Harvesting
Realize losses to offset taxable gains at both state and federal levels.
5. Reinvest Gains in Federal Opportunity Zones
May allow federal deferral or exclusion of gains.
6. Consider Installment Payments
Spreading a sale over multiple years may keep taxable gains below the exemption threshold.
Washington’s 7% capital gains excise tax adds complexity to planning major transactions. Because optimal strategies vary by asset type, timing, and income, consider consulting a qualified tax professional or financial advisor to determine the most effective approach for your situation.