Washington’s capital gains tax: 7%, then 9.9%, on gains above the deduction

Washington taxes an individual’s long-term capital gains, as reported on the federal Schedule D and allocated to Washington, at 7% on the amount above a standard deduction and at 9.9% on taxable gain above $1,000,000. The deduction was $278,000 for 2025, one per individual or per married couple, and the 2026 amount is to come; the Department of Revenue adjusts it for inflation each year and had not published it when this was written. Real estate is exempt, gains inside IRAs and 401(k)s are exempt, and short-term gains are never counted. Only people who owe the tax file, electronically through My DOR, on the same day as the federal return, April 15, 2027 for tax year 2026, with a copy of the federal return attached. For tax year 2025, 6,726 people filed and together paid more than $1.5 billion. For everyone else the tax is a question to answer, not a bill to pay.

The question matters most in three situations: a sale of a business or a large block of company stock, a year of heavy option or RSU sales at a technology employer, and a move into or out of Washington in the same year as a sale. In each, the Washington tax can be tens of thousands of dollars and it turns on facts, the holding period, the type of asset and the seller’s domicile on the sale date, that are settled before anyone thinks about the return.

What is taxed: federal net long-term gain, then Washington’s adjustments

The starting point is the federal net long-term capital gain on Schedule D. Short-term gains are not taxed and short-term losses cannot reduce the Washington figure, because they are not part of the federal net long-term number. Losses carried forward from sales before January 1, 2022, the year the tax began, cannot reduce it either and are added back. Gain excluded federally on qualified small business stock under section 1202 never enters the base, because it is not in the federal number to begin with.

From that figure Washington removes the exempt categories. The Department’s list: real estate, and interests in a privately held entity to the extent the gain is directly attributable to real estate the entity owns directly; assets held in retirement accounts, which the Department’s FAQ describes as 401(k)s, IRAs, Roth IRAs and similar accounts; property sold under condemnation or the imminent threat of it; certain livestock in farming and ranching; property used in a trade or business to the extent it is depreciable under IRC section 167(a)(1) or expensed under section 179; timber and timberland and REIT distributions derived from them; commercial fishing privileges; and goodwill from the sale of a franchised auto dealership. What remains is mostly stock, bonds, mutual funds, partnership and LLC interests, cryptocurrency, art and collectibles, and the goodwill of an ordinary business.

Then the gain is allocated. Tangible property is Washington’s if it was located here at the time of sale, or if it was here at any point in the year of sale or the year before and the seller was a Washington resident on the sale date. Intangible property, which is to say stock and nearly everything else that matters, is Washington’s if the seller was domiciled in Washington at the time of the sale. Domicile is covered in Moving to Washington; the short version is that the Department presumes anyone domiciled in Washington at any time during the year was domiciled here on the sale date unless they prove otherwise.

The standard deduction and the two rates

Every individual, or every married couple or registered domestic partnership together, gets one standard deduction against Washington capital gains, whatever their federal filing status. A couple filing jointly, a couple filing separately and a single person each get one deduction of the same size. The amounts: $270,000 for 2024, $278,000 for 2025, and for 2026 a figure the Department has yet to publish. Taxable Washington capital gain is what is left after the deduction, and the rate is 7% on the first $1,000,000 of it and 9.9%, which the Department describes as the 7% plus an additional 2.9%, on the rest. The tiers took effect with tax year 2025 under ESSB 5813, so the 2026 return is the second one filed under them. The Department’s special notice applies the $1,000,000 breakpoint to taxable gain, that is, after the deduction, and says nothing about indexing the breakpoint.

The Department publishes the inflation-adjusted deduction and charitable cap on its capital gains tax page under “Updated amounts.” When the 2026 figures appear they will be a few percent above $278,000 and $111,000.

Deductions and credits that reduce it

Charitable gifts. A donor who gives to a charity principally directed or managed in Washington may deduct the amount given above the standard-deduction figure, up to a cap: for 2025, gifts above $278,000, with the deduction capped at $111,000. A $400,000 gift to a Seattle foundation in a year of a large sale produces a $111,000 deduction, worth $7,770 at 7% or $10,989 at 9.9%. A gift to a national charity headquartered elsewhere produces nothing. The gift and the sale have to be in the same year.

The family-owned small business. Gain on the sale of all or substantially all of a qualified family-owned small business is deductible. The qualification turns on the owner’s involvement and the business’s revenue over a lookback period, and the tests are strict enough that a seller should have them checked before the sale closes rather than after.

Credits. If another state or country imposed an income or excise tax on the same gain from an asset located there, Washington credits it. If the sale also generated Washington business and occupation tax, which can happen when a sole proprietor or pass-through sells business assets, the B&O tax paid on that sale is a credit from tax year 2025 on.

Filing: My DOR, the federal return attached, April 15

There is no paper form and no form number. The return is filed through My DOR, the Department’s online portal, using a SecureAccess Washington login, or through tax software the Department has approved. A copy of the complete federal return for the same year, with Schedule D and Form 8949, is uploaded with it; the Department will not process a return or issue a refund without it. Only individuals who owe the tax must file. Someone whose Washington gains are below the deduction, or entirely exempt, files nothing, though anyone who made an estimated payment or requested an extension must file to close the account whether or not tax is due.

The due date is the federal due date, April 15, 2027 for tax year 2026. An extension is requested through My DOR by April 15 and is available only to someone who has a federal extension; it extends the filing to October 15, 2027 and does not extend the payment. Payment is electronic, by bank transfer or card, and a payment made some other way can itself draw a penalty. Late filing and late payment carry penalties and interest, and a substantial underpayment penalty applies if less than 80% of the tax was paid by the original due date. An estimated payment by April 15 of a reasonable amount is the way to avoid the late payment penalty when the federal return is on extension and the final number is not yet known.

New for tax year 2026: the tax can be prepaid up to six months before the due date, so payments for the 2026 return have been accepted since October 15, 2026. The Department does not require quarterly payments and there is no underpayment interest for paying nothing until April. The reason to prepay is cash management, or the hope of a federal deduction in 2026 rather than 2027; whether the Washington capital gains tax is deductible on Schedule A as a state income tax, subject to the $40,400 SALT cap, is unsettled, and preparers differ. A prepayment does not reduce the federal gain reported on the Washington return.

For tax year 2025 the Department moved the due date for all filers to May 1, 2026, matching IRS storm relief for Washington. That was a one-year change; the 2026 return is back on April 15.

The income tax on the books for 2028, and today’s vote

In March 2026 the Legislature passed and the governor signed ESSB 6346, a 9.9% tax on Washington taxable income above a standard deduction of $1,000,000 per individual or per couple, effective January 1, 2028, with the first returns and payments due in 2029. The base starts from federal adjusted gross income, with long-term gains already taxed under the capital gains tax removed and a credit for capital gains tax paid on gains that would otherwise be taxed twice. It carries a $100,000 charitable deduction cap, a pass-through entity election, estimated payments from July 1, 2030 for tax of $5,000 or more, and a package of other changes: the Working Families Tax Credit opens to everyone 18 and older from 2029, and the B&O small business credit and filing threshold rise. The Legislature also amended Initiative 2111, the 2024 statute banning income taxes, to say it does not apply to this tax.

The tax is being challenged in court in Petter v. State of Washington, with a summary judgment hearing set for February 5, 2027, and it survived the ballot: on November 3, 2026 voters rejected Initiative 645, which would have repealed it before it started and added a statutory ban on state and local taxes on or measured by individual income, by 57.93% to 42.07%. The tax therefore stays in law, and the court case is now the only thing standing between it and January 1, 2028. The capital gains tax, which the state supreme court upheld as an excise tax in 2023, is not affected by the vote. None of this touches the 2026 capital gains return. What it changes is planning for 2028 and after, for the small group of households with income or gains above $1,000,000.