Key Takeaways
- Retroactive to January 1, 2025, Washington state now applies an additional 2.9% tax for net long-term capital gains in excess of $1 million.
- Beginning July 1, 2025, the Washington estate tax exemption will increase to $3 million, adjusted annually for inflation.
- Beginning July 1, 2025, the Washington estate tax rates are increased up to a top marginal rate of 35%.
Washington Senate Bill 5813 provides significant increases to the state’s capital gains tax and estate tax. These additional taxes are one component of several tax bills the state legislature and Governor passed today in the face of a multi-billion budget deficit facing Washington state over the next four years.
Increasing the Washington State Capital Gains Tax
The Washington state capital gains tax is a 7% state-level tax on net long-term capital gains realized after January 1, 2022. The first $250,000 of net long-term capital gains are exempt, adjusted annually for inflation. The standard deduction for 2024 is $270,000, and the Washington Department of Revenue has not yet released the inflation-updated amount for 2025. The Washington State Supreme Court upheld the capital gains tax as constitutional on March 24, 2023, in Quinn v. Washington.
The new law applies an additional 2.9% tax on top of the original 7% tax to net long-term capital gains exceeding $1 million (after the $270,000 exemption). The new tax is effective retroactive to January 1, 2025.
The new tax brackets for the Washington state capital gains tax are:
| Net Long-Term Capital Gains | Tax Rate |
|---|---|
| $0 – $270,000 (inflation-adjusted as of 2024) |
Exempt (0%) |
| $270,001 – $1,270,000 | 7% |
| $1,270,001 + | 9.9% |
Increasing the Washington State Estate Tax
The new law also makes two significant changes to the Washington state estate tax, effective July 1, 2025.
First, the state estate tax exemption is increased to $3 million, adjusted annually for inflation.
Second, state estate tax rates are being increased for almost every bracket. The highest rate is now 35% for estates with net assets exceeding $9 million, which is the highest state-level estate tax rate in the nation by a large margin. For large estates subject to both the federal and state-level estate tax, the combined effective tax rate is a maximum of approximately 61%.
| Net Estate Bracket | Prior Estate Tax Rate | New Estate Tax Rate |
|---|---|---|
| $0 – $1,000,000 | 10% | 10% |
| $1,000,001 – $2,000,000 | 14% | 15% |
| $2,000,001 – $3,000,000 | 15% | 17% |
| $3,000,001 – $4,000,000 | 16% | 19% |
| $4,000,001 – $6,000,000 | 18% | 23% |
| $6,000,001 – $7,000,000 | 19% | 26% |
| $7,000,001 – $9,000,000 | 19.5% | 30% |
| $9,000,000 + | 20% | 35% |
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