Do You Pay Taxes When Selling a House in Washington?

Selling a house in Washington triggers two main taxes: the state’s Real Estate Excise Tax (REET), which comes out of your closing proceeds on nearly every sale, and federal capital gains tax on any profit above the homeowner exclusion. Most sellers of a primary residence owe REET but no federal tax, because the Section 121 exclusion shelters up to $250,000 of gain for single filers and $500,000 for married couples. The other taxes you may encounter when selling a house in Washington are a property tax proration at closing, a 3.8% federal surtax for higher-income sellers, and FIRPTA withholding if you’re a foreign national.

Washington’s Real Estate Excise Tax

Washington charges an excise tax on every sale of real property in the state unless a specific exemption applies.¹ REET is technically the seller’s responsibility, though the buyer can be held liable if it goes unpaid. Your title or escrow company calculates it and forwards payment to the county treasurer at closing, so you rarely handle it yourself.

State Graduated Rates

REET uses a graduated structure. Each rate applies only to the portion of the selling price within that tier, not to the whole price. The current thresholds took effect January 1, 2023 and run through December 31, 2026, with the next adjustment scheduled for January 1, 2027.¹

1.10% on the portion of the selling price up to $525,000
1.28% on the portion between $525,001 and $1,525,000
2.75% on the portion between $1,525,001 and $3,025,000
3.00% on anything above $3,025,000

Local Add-Ons

Most cities and counties add their own REET on top of the state rate. State law allows every city and county to impose 0.25% (“REET 1”), and jurisdictions that plan under the Growth Management Act can stack another 0.25% (“REET 2”).² Most populated areas have adopted both, adding a combined 0.50%. Some counties have additional authority for conservation or affordable housing levies. Check your county treasurer’s website for the exact combined rate before closing.

Common REET Exemptions

Washington law carves out situations where no REET is owed, including:³

Gifts, inheritances, and transfer-on-death deeds
Property assignments between spouses or domestic partners under a dissolution decree or settlement agreement
Foreclosures, deeds in lieu, and transfers by execution of judgment
Condemnation proceedings and sales by government entities
Transfers that change only the form of ownership without changing who actually benefits from the property

If you think your transfer qualifies, flag it early. Your escrow company will need documentation to submit with the excise tax affidavit.

Federal Capital Gains Tax

Your gain is the sale price minus your adjusted basis and selling costs. Adjusted basis starts with what you originally paid, then increases for capital improvements like a new roof, kitchen remodel, or added square footage. Agent commissions and title fees further reduce the taxable gain.

The Section 121 Exclusion

Most sellers of a primary residence owe nothing in federal capital gains tax. Single filers can exclude up to $250,000 of gain, and married couples filing jointly can exclude up to $500,000.⁴ To qualify, you must have owned and lived in the home as your primary residence for at least two of the five years before the sale. The two years don’t need to be consecutive.

For married couples claiming the full $500,000, both spouses must meet the use requirement and at least one must meet the ownership requirement.⁴ Neither spouse can have used the exclusion on another sale within the past two years.

Partial Exclusion if You Sell Early

If you sell before hitting two years, you may still qualify for a reduced exclusion. The IRS allows a partial exclusion when the sale was driven by a job move, health issue, or certain unforeseeable events.⁵

Work-related move: your new job is at least 50 miles farther from the home than your previous workplace was
Health-related move: you relocated to get or provide medical care, or a doctor recommended the move
Unforeseeable events: the home was destroyed or condemned, you lost your job and qualified for unemployment, a divorce or legal separation occurred, or you had a multiple birth

The partial exclusion is proportional. If you lived in the home for one year out of the required two, you can exclude up to half the full amount ($125,000 single, $250,000 married). Many sellers assume selling early means no exclusion at all and leave money on the table.

2026 Long-Term Capital Gains Rates

Any gain above the exclusion is generally taxed as a long-term capital gain, since most owners hold well over a year. For 2026:

0% if your taxable income is below $49,450 (single) or $98,900 (married filing jointly)
15% between those amounts and $545,500 (single) or $613,700 (married filing jointly)
20% on taxable income above those upper thresholds

Your taxable income for bracket purposes includes the capital gain itself, which can push you into a higher bracket on a large sale. IRS Publication 523 walks through the full calculation.⁵

Depreciation Recapture

If you ever rented out part or all of the home, or claimed a home office deduction that included depreciation, the portion of your gain attributable to that depreciation is taxed at a flat 25% rate, regardless of your income bracket.⁶ Recapture applies even if the rest of your gain falls within the Section 121 exclusion. Sellers who converted a rental back into a primary residence are often caught off guard, because the exclusion shelters the appreciation but not the depreciation.

Net Investment Income Tax for Higher Earners

An additional 3.8% Net Investment Income Tax may apply on top of capital gains tax. The surtax kicks in when your modified adjusted gross income exceeds $250,000 for married couples filing jointly, $200,000 for single filers, or $125,000 for married individuals filing separately.⁷

Any gain excluded under Section 121 is not treated as net investment income, so NIIT only applies to the taxable portion of your profit.⁸ If the entire gain fits within your $250,000 or $500,000 exclusion, NIIT is irrelevant. If your gain exceeds the exclusion and your income is above the threshold, the combined federal rate on that excess can reach 23.8%.

What Washington Does Not Tax

Washington has a 7% capital gains tax on stocks, bonds, and other financial assets above a high-dollar threshold, but real estate sales are explicitly exempt.⁹ The exemption also covers sales of interests in privately held entities to the extent the gain comes from real estate the entity owns. Selling your house directly or selling your interest in an LLC that holds the property, the state capital gains tax does not apply.

Property Tax Proration at Closing

When you sell mid-year, closing splits the year’s property tax bill between you and the buyer based on days of ownership. This shows up as a credit or debit on your closing statement.

Washington’s property tax year runs January 1 through December 31, with payments due in two installments: the first half by April 30 and the second half by October 31.¹⁰ If you close in June and have already paid the first installment covering January through June, you’ll receive a credit for the days past closing. If you haven’t paid it yet, you’ll be debited for your share. This isn’t a new tax; it’s a reallocation of what you already owe. Escrow handles the math, but confirm the proration date matches your actual closing date.

FIRPTA Withholding for Foreign Sellers

If you’re a foreign national selling property in Washington, the buyer must withhold a portion of the sale price and send it to the IRS under the Foreign Investment in Real Property Tax Act. The standard rate is 15% of the total sale price.¹¹

Two reduced rates apply when the buyer plans to live in the home:

Sale price of $300,000 or less: no withholding required, provided the buyer (an individual) intends to occupy the home for at least half the days it’s used during each of the first two years after closing.¹²
Sale price between $300,001 and $1,000,000: withholding drops to 10% if the buyer meets the same residence requirement

Withholding is a prepayment, not a final tax. Foreign sellers file a U.S. tax return reporting the actual gain and receive a refund if the withholding exceeded the tax owed. You can apply to the IRS for a withholding certificate before closing to reduce or eliminate the amount held back, but the application takes time, so start early.

Form 1099-S Reporting

Your settlement agent or escrow company is generally required to report the sale to the IRS on Form 1099-S, which shows the gross sale price.¹³ You get a copy, the IRS gets one.

There is an exception. If the sale price is $250,000 or less ($500,000 for a married couple) and you certify in writing that the home was your principal residence with the full gain excluded under Section 121, the settlement agent does not have to file the form.¹³ Most escrow companies ask you to sign this certification at closing. If you don’t sign, they file the 1099-S anyway, and the IRS will expect the sale to be addressed on your tax return even if no tax is owed. Keep your closing documents in either case.

1
Washington State Legislature. Washington Code RCW 82.45.060 – Tax on Sale of Property
2
Washington State Legislature. Washington Code Chapter 82.46 RCW – Counties and Cities Excise Tax on Real Estate Sales
3
Washington State Legislature. Washington Code RCW 82.45.010 – Sale Defined
4
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
5
Internal Revenue Service. Publication 523, Selling Your Home
6
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
7
Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
8
Internal Revenue Service. Net Investment Income Tax
9
Washington Department of Revenue. Capital Gains Tax
10
Washington State Department of Revenue. 2026 Property Tax Calendar Due Dates
11
Internal Revenue Service. FIRPTA Withholding
12
Internal Revenue Service. Exceptions From FIRPTA Withholding
13
Internal Revenue Service. Instructions for Form 1099-S, Proceeds From Real Estate Transactions