Washington does not have a tax formally called a luxury tax, but the state uses several excise taxes that function the same way, concentrating their impact on high-value purchases, large investment profits, expensive property sales, and sizeable estates. A single event, such as selling a business or a waterfront home, can trigger more than one of these taxes at once. The main ones to know are the 7% capital gains tax, the graduated real estate excise tax, the state estate tax, an extra 0.3% tax on motor vehicle sales, and an annual watercraft excise tax on boats.
Capital Gains Tax on Investment Profits
Washington taxes long-term capital gains at a flat 7%, separate from ordinary income. The tax applies to profits from selling or exchanging capital assets held longer than one year, including stocks, bonds, and ownership interests in partnerships or LLCs.1Washington State Legislature. Washington Code 82.87 – Capital Gains Tax It took effect January 1, 2022, and survived a challenge before the Washington Supreme Court.
Not every dollar of gain is taxed. The state provides a standard deduction, which for 2025 was $278,000 per individual, married couple, or domestic partnership. The Department of Revenue adjusts this deduction each year for inflation, capped at a 3% annual increase.2Washington Department of Revenue. Capital Gains Tax Only gains above the deduction are taxed at 7%. If you realized $350,000 in long-term capital gains and the deduction were $278,000, you would owe 7% on $72,000.
What the Tax Excludes
Several important categories fall outside the tax. Real estate sales are excluded, which avoids overlap with the state’s real estate excise tax. Gains inside 401(k) plans, 403(b) plans, traditional IRAs, and Roth IRAs are exempt. Livestock, timber, and timberlands have their own exemption. Depreciable business property that qualifies for depreciation or amortization under federal tax rules is also excluded. Each of these exemptions is written directly into the statute’s definition of long-term capital assets.1Washington State Legislature. Washington Code 82.87 – Capital Gains Tax
Federal Layering
Washington’s 7% is not the whole picture. Federal long-term capital gains taxes apply at 0%, 15%, or 20% depending on your taxable income. High earners may also owe the 3.8% Net Investment Income Tax once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.3Fidelity. What Is Net Investment Income Tax (NIIT)? Combined, a Washington resident in the top bracket could pay over 30% on long-term investment gains.
Graduated Real Estate Excise Tax
Every sale of real property in Washington triggers the Real Estate Excise Tax (REET), and the rate climbs with the sale price. Since January 1, 2020, the state has used a four-tier graduated system:4Washington State Legislature. Washington Code 82.45.060 – Tax on Sale of Property
- Up to $500,000: 1.1%
- $500,001 to $1,500,000: 1.28%
- $1,500,001 to $3,000,000: 2.75%
- Over $3,000,000: 3.0%
The tiers work like income tax brackets. Only the portion of the price within each range is taxed at that range’s rate. Selling a home for $2,000,000 means paying 1.1% on the first $500,000, 1.28% on the next million, and 2.75% on the remaining $500,000, for a combined bill of $32,050.
The seller pays REET, and the tax is collected when the deed is recorded with the county.4Washington State Legislature. Washington Code 82.45.060 – Tax on Sale of Property Many cities and counties add their own local REET on top of the state rate, so the amount due at closing can be higher than the state tiers alone suggest. Sellers of higher-priced properties should ask their closing agent for a net sheet early.
Washington State Estate Tax
Washington is one of roughly a dozen states with its own estate tax, separate from the federal one. It applies to the estates of Washington residents and to real or tangible personal property located in the state regardless of the decedent’s residence. The state exemption is significantly lower than the federal exemption, so estates that owe nothing to the IRS can still face a substantial state bill.
State rates are graduated, starting at 10% and reaching 20% on the largest estates. Because the rate brackets are steep, estates just above the exemption can face effective rates that surprise families. Anyone with assets approaching or exceeding roughly $2 million in total value should consult an estate planning attorney about the current exemption and about strategies like gifting, trusts, or life insurance arrangements that can reduce the taxable estate.
For comparison, the federal estate tax exemption for 2026 is $15,000,000 per individual, with a top rate of 40% on amounts above that.5Internal Revenue Service. Estate Tax Most Washington residents will not owe federal estate tax, but the state-level tax catches many more estates because its exemption is a fraction of the federal threshold.
Extra Tax on Motor Vehicle Sales
When you buy a car in Washington, you pay the standard 6.5% state sales tax plus whatever local sales taxes apply. The state then adds a separate 0.3% tax on every retail sale of a motor vehicle.6FindLaw. Washington Code Title 82 Excise Taxes – Tax Imposed–Retail Sales–Retail Car Rental On a $60,000 vehicle, that surcharge adds $180. The 0.3% applies to most vehicles registered for public road use, but not to farm tractors, off-road vehicles, snowmobiles, or nonhighway vehicles.
The surcharge has been in effect since July 2003, and its revenue is earmarked for multimodal transportation. While 0.3% sounds small, it stacks on top of combined state and local rates that can exceed 10% in some parts of the state, so the total sales tax on an expensive vehicle adds up quickly.
Annual Watercraft Excise Tax
Owning a boat in Washington means paying more than the purchase-day sales tax. The state imposes an annual watercraft excise tax equal to 0.5% of the vessel’s fair market value, or $25, whichever is greater.7Washington State Legislature. Washington Code 82.49 – Watercraft Excise Tax Fair market value is reassessed each year, so the tax drops as the boat depreciates. On a vessel valued at $200,000, the annual tax is $1,000.
The tax applies to most vessels required to be registered in Washington. Motorized boats of any length are covered. Non-motorized vessels under sixteen feet are exempt, as are government vessels and those belonging to foreign governments.7Washington State Legislature. Washington Code 82.49 – Watercraft Excise Tax Keeping registration current matters, since lapses can result in penalties.