“Washington has no capital gains tax” was true until 2022, and it’s the kind of half-remembered fact that keeps getting repeated after it stopped being accurate. Washington does levy a capital gains tax now, it applies to individuals (not just corporations), and a 2025 law change made it more consequential for anyone with a large gain. It’s also narrower than a lot of people assume — most Washington residents will never owe a dollar of it, because most common types of gains are specifically excluded.
This guide explains the mechanism: what counts, what’s exempt, the current rates, and the deduction that determines whether you owe anything at all. Every figure here was checked against the Washington Department of Revenue’s own published guidance.
The short version
Washington’s capital gains tax applies to long-term capital gains above an annual standard deduction, at 7% on the portion up to $1,000,000 in gain and 9.9% on the portion above $1,000,000. It does not apply to real estate, most retirement accounts, or several other common categories described below. The deduction adjusts every year for inflation; the $1,000,000 breakpoint between the two rates does not adjust for inflation, so more gains will cross into the higher tier over time even without the tax law itself changing.
What the tax actually applies to
Washington’s capital gains tax reaches long-term capital gains — generally, gains on assets held more than a year — from the sale or exchange of things like stocks, bonds, and ownership interests in businesses. It applies to individuals; corporations and most other entities are outside its scope, though gains from an entity can flow through to an individual owner’s return depending on the structure.
It is a standalone tax, separate from the federal capital gains tax on the same transaction. You calculate and pay both — Washington’s tax doesn’t replace or reduce what you owe the IRS, and vice versa.
What’s exempt — the list that actually matters
This is the part most casual summaries skip, and it’s the part that determines whether the tax applies to you at all. Per the Washington Department of Revenue, the following are excluded from the capital gains tax:
- Real estate — gains from selling real property are excluded entirely, along with gains from interests in privately-held entities to the extent those gains are attributable to real estate the entity owns.
- Certain retirement accounts — gains held inside qualifying retirement accounts are excluded.
- Assets sold under condemnation, or under imminent threat of condemnation.
- Livestock related to farming or ranching.
- Depreciable business assets, including property that qualifies for expensing under federal tax rules.
- Timber and timberland, along with REIT distributions attributable to timber sales.
- Commercial fishing privileges.
- Goodwill from the sale of a franchised auto dealership.
For most Washington residents, the real estate exclusion alone is the reason this tax never touches them — a home sale, by far the most common large capital gain an individual ever realizes, is categorically outside this tax’s reach. That’s a meaningfully different picture from what “Washington now has a capital gains tax” tends to imply on first read.
Who this actually reaches
Given the exemption list, the tax mostly lands on:
- People who sell publicly traded stock, privately held business interests, or other financial assets at a gain — the RSU-vesting tech employee who later sells shares at a profit, the founder who sells a company, the investor liquidating a concentrated position.
- Gains large enough to clear the annual standard deduction in the first place (more on that below).
If your gain came from selling your house, from a retirement account, or from livestock or timberland, this tax almost certainly isn’t the one to worry about — though the exemption’s exact scope can turn on structuring details worth confirming rather than assuming.
The rates: 7% and 9.9%
Under ESSB 5813 (2025), effective retroactively to January 1, 2025, Washington’s capital gains tax uses a two-tier structure:
- 7% on taxable long-term capital gain above the standard deduction, up to $1,000,000 of gain.
- 9.9% (the original 7% plus a 2.9% surcharge added by ESSB 5813) on taxable gain above $1,000,000.
Before 2025, the rate was a flat 7% with no upper tier — the 9.9% bracket is new, and it only affects the portion of a gain above the $1 million mark, not the entire gain once you cross it. A $1.5 million taxable gain, for example, is taxed at 7% on the first $1,000,000 and 9.9% on the remaining $500,000 — not 9.9% on the whole amount.
The standard deduction: a mechanism, not a fixed number
Every filer subtracts an annual standard deduction from their gain before either rate applies, and the Department of Revenue adjusts this deduction every year for inflation. It has risen each year since the tax took effect in 2022: $250,000 that first year, $262,000, $270,000, and $278,000 for 2025 — the most recent figure published as of this writing. The 2026 amount had not yet been posted by the Department of Revenue when we researched this guide, consistent with the pattern of the figure typically being published closer to the following spring’s filing season. If you’re estimating your own exposure, use the most recently published figure as a floor and expect the actual 2026 number to land modestly higher, not lower.
The $1,000,000 breakpoint between the 7% and 9.9% tiers works differently: it is a fixed dollar figure that is not adjusted for inflation. In practical terms, that means the gap between “everyone pays 7%” and “part of your gain hits 9.9%” gets relatively easier to reach every year, even if the legislature never touches the rate again, simply because gains and asset values tend to grow while the $1 million line stands still.
Why this matters for planning, not just filing
Because the deduction is annual and the tiers are cliff-edged around a gain size rather than income, when you realize a gain can matter as much as how large it is. Spreading a sale across two tax years, where feasible, can mean claiming the standard deduction twice and potentially keeping more of the gain under the 7% tier rather than the 9.9% one in a single year. None of that is a decision to make without modeling your specific numbers first — a rule of thumb applied to the wrong facts can cost more than it saves.
This shows up constantly in Seattle and Bellevue, where RSU-heavy compensation and concentrated stock positions are common, and in Kirkland and Redmond, where a large share of clients hold employer equity that eventually gets sold at a gain.
Frequently asked questions
Does Washington’s capital gains tax apply to selling my house?
No. Real estate is entirely excluded from Washington’s capital gains tax, regardless of the size of the gain. This is one of the most common exemptions that gets missed in casual summaries of the tax.
What is the standard deduction for Washington’s capital gains tax?
It adjusts every year for inflation. The most recently published figure, for 2025, was $278,000. The 2026 amount had not been published by the Department of Revenue as of this writing — check the current figure before estimating your own liability for the current year.
Is the $1,000,000 rate threshold adjusted for inflation?
No. Unlike the standard deduction, the $1,000,000 breakpoint between the 7% and 9.9% rates is a fixed figure that does not increase over time, which means more gains will eventually cross into the 9.9% tier even without any change to the law itself.
Do RSUs or stock options get taxed under this?
Vesting itself is ordinary income, not a capital gain, and isn’t covered by this tax. Once you later sell the vested shares, any gain on that sale is a capital gain and can be subject to this tax if it’s large enough to exceed the standard deduction.
Does this tax apply to retirement accounts?
Gains held inside qualifying retirement accounts are excluded. The tax generally reaches gains realized outside of retirement account structures.
Is Washington’s capital gains tax the same as the federal capital gains tax?
No — they’re separate taxes on the same transaction. You calculate and pay Washington’s tax in addition to, not instead of, whatever you owe the IRS on the same gain.
Who should actually worry about this tax?
Realistically, individuals with a large gain from selling stock, a business interest, or another non-exempt financial asset — particularly one that clears $1,000,000 in gain, where the 9.9% tier starts to apply. Most Washington residents, whose largest lifetime gain is typically their home, will never owe this tax at all.
This article reflects our research of official Washington Department of Revenue guidance as of August 2026, including ESSB 5813 (2025), which added the 9.9% tier. Figures like the annual standard deduction change every year — confirm the current-year amount with the Department of Revenue before relying on any number here. This is general information, not tax advice, and reading it doesn’t create a client relationship. For a review of your specific situation, including the timing of a planned sale, book a free consultation with IMAAR Associates CPA, PLLC, the professional practice of a Washington State Licensed CPA.