Washington’s capital gains tax on real estate is effectively zero: the sale or exchange of real estate is exempt from the state’s capital gains tax under RCW 82.87.050.1Washington State Legislature. RCW 82.87.050 – Exemptions The profit you earn selling a house, a rental, a commercial building, or raw land is not subject to the 7% or 9.9% state rate that applies to stocks and other intangible assets. That doesn’t make the sale tax-free. Washington still charges a Real Estate Excise Tax (REET) on the transfer itself, and the federal government still taxes real estate gains under its own rules.
What the Real Estate Exemption Covers
Washington’s capital gains tax took effect January 1, 2022, and the legislature carved real estate out entirely. The statute defines real estate as land and any permanent structure attached to it, including houses, apartment buildings, and warehouses, along with interests in real property such as leaseholds.2Washington State Legislature. RCW 82.87 – Capital Gains Tax
Property type doesn’t matter. A primary residence, a vacation cabin, a commercial office, and undeveloped acreage all qualify for the exemption. The gain stays outside the state capital gains calculation entirely, and you don’t need to file a capital gains return just because you sold property.
Selling an Entity That Owns Real Estate
If you hold property through an LLC, partnership, or similar entity and sell your ownership interest, the portion of your gain attributable to real estate owned by that entity is also exempt.1Washington State Legislature. RCW 82.87.050 – Exemptions The exempt amount equals the fair market value of the entity’s real estate minus its basis, multiplied by your ownership percentage.
Two limits are worth knowing. The exemption only applies to real estate the entity owns directly; property held through a subsidiary doesn’t count toward your calculation. And while fair market value can be set by appraisal or by a buyer-seller asset allocation under federal tax rules, the Department of Revenue is not bound by whatever the parties agree to if the numbers don’t reflect actual fair market value. Any portion of the gain not attributable to real estate remains taxable like any other investment gain.
Federal Capital Gains Tax Still Applies
The state exemption only removes the Washington tax. The federal government taxes real estate gains under its own rules, and this is the bill most Washington sellers actually face.
For a primary residence, Section 121 of the Internal Revenue Code lets you exclude up to $250,000 of gain as a single filer or $500,000 for a married couple filing jointly.3Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence To qualify, you must have owned and used the home as your principal residence for at least two of the five years before the sale. Joint filers only need one spouse to meet the ownership test, but both must individually meet the use test. You also can’t have claimed the exclusion on another home sale within the prior two years.4Internal Revenue Service. Topic No. 701, Sale of Your Home
Gain above the exclusion, plus any gain on investment property and second homes that don’t qualify, is taxed at federal long-term capital gains rates of 0%, 15%, or 20% depending on your income. Rental properties, vacation homes, and high-value primary residences are the most common situations where federal tax hits even though state tax does not.
Washington’s Real Estate Excise Tax (REET)
Nearly every real estate sale in Washington triggers REET, which is based on the selling price rather than the profit. The state uses a graduated structure, and for 2026 the state-level tiers are:5Washington Department of Revenue. Real Estate Excise Tax
- $525,000 or less: 1.10%
- $525,000.01 to $1,525,000: 1.28%
- $1,525,000.01 to $3,025,000: 2.75%
- $3,025,000.01 and above: 3.00%
The rates are marginal, so each tier applies only to the portion of the selling price that falls within it. Agricultural land and timberland sit outside the graduated structure and are taxed at a flat 1.28%.
Cities and counties layer their own local REET on top of the state rate. Most add 0.25% or 0.50%, though some are higher, and the Department of Revenue publishes the combined rate for each jurisdiction. The seller is typically responsible for paying REET, but buyer and seller can shift that in the purchase agreement.
Filing and Deadline
Every sale requires a completed Real Estate Excise Tax Affidavit submitted to the County Treasurer in the county where the property sits, along with payment. The filing and payment are due within 30 days of the sale date.6Washington State Legislature. WAC 458-61A-306 The deed cannot be recorded with the County Auditor until the Treasurer processes the affidavit and confirms payment, which makes REET effectively a gate on legally transferring ownership.
Late Penalties
Missing the 30-day window triggers interest of 1% per month from the sale date, plus escalating penalties:6Washington State Legislature. WAC 458-61A-306
- One month late: 5% of the tax owed
- Two months late: 10% of the tax owed
- Three months late: 20% of the tax owed
Combined interest and penalties are capped at 25% of the tax, with a $5 minimum, and the unpaid amount becomes a legal debt to the state. Late payment also delays recording of the deed, which creates its own problems for the buyer.
When the State Capital Gains Tax Does Apply
If you also sell stocks, bonds, business interests, or intangible property like patents or goodwill in the same year, those gains are subject to the Washington capital gains tax even though your real estate sale is not.7Washington State Legislature. RCW 82.87.040 The tax applies only to individuals, only to long-term gains (assets held longer than one year), and only to the extent total taxable gains exceed an inflation-adjusted standard deduction, which was $278,000 for the 2025 tax year.8Washington Department of Revenue. Capital Gains Tax Your real estate gain is not counted when figuring whether you cross that threshold. The return is due on the same date as your federal income tax return and is filed directly with the Department of Revenue.