State taxes
Washington Capital Gains Tax: The 7% Tax Most Residents Miss
"Washington has no income tax" is true — and it's also the reason so many Washingtonians get blindsided. Since 2022, the state taxes long-term capital gains through an excise tax: 7% on gains above roughly $278,000 a year (the 2025 exclusion, the latest figure DOR has published; it adjusts for inflation each year), with an extra 2.9% on taxable gains above $1 million.
Updated September 2026 · 6 min read
How the tax works
| WA taxable long-term gains | Rate |
|---|---|
| Up to ~$278,000 of gains (annual exclusion) | 0% |
| Taxable gains up to $1,000,000 | 7% |
| Taxable gains above $1,000,000 | 9.9% (7% + 2.9% surcharge) |
The exclusion is per individual (not per household — a married couple filing jointly doesn't get double), and it adjusts for inflation each year. The tax applies to the gain, not the sale price: sell $500,000 of stock with a $100,000 basis and your gain is $400,000, of which roughly $122,000 is taxable at 7%.
What's exempt
- Real estate — gains on selling your home or other real property are excluded.
- Retirement accounts — IRA, 401(k), pension, and similar retirement savings are exempt.
- Short-term gains — only long-term gains (assets held over a year) count.
- Timber and timberland, livestock-related gains, certain small-business interests, and assets subject to condemnation are also carved out.
What isn't exempt: stocks, mutual funds, ETFs, and business sales held in taxable accounts — exactly the assets many retirees sell to fund spending.
Why retirees should care
Consider a retiree trimming a concentrated stock position — say $400,000 of long-term gain in one year to diversify. Federal tax might be 15–20% plus the 3.8% net investment income tax. Washington adds another ~$8,540 on the amount above the exclusion. Spread that same sale across two tax years and the WA tax can drop to zero.
Planning strategies
- Spread large sales across years to stay under the annual exclusion each year.
- Harvest in low-income years — the exclusion is use-it-or-lose-it annually.
- Donate appreciated stock instead of cash — you avoid the gain entirely and get the federal deduction.
- Mind the $1M surcharge threshold — a business sale or large liquidity event can cross it fast.
- Coordinate with federal brackets — the same sale that triggers WA tax may also push you into the 20% federal bracket or NIIT territory.
See your WA tax, year by year
NestCalc models Washington's capital-gains excise tax in every year of your plan — alongside federal tax, RMDs, and IRMAA — across 1,000 market scenarios.
Run the free calculator →Frequently asked questions
Is this really a tax if Washington's constitution bans income taxes?
The state supreme court upheld it in 2023 as an excise tax on the privilege of selling capital assets, not an income tax. Whatever the legal label, the money comes out of your pocket the same way.
Does the exclusion double for married couples?
No. The ~$278,000 annual exclusion (2025 figure, the latest DOR has published) is per taxpayer return structure as defined by the statute — plan as one exclusion per household return, and verify current DOR guidance.
Do I owe it if I move out of Washington mid-year?
The tax applies based on residency/domicile rules for the tax year. If you're considering a move, the timing of large sales relative to your move date matters — get advice for your situation.
When is it due?
It's filed annually with the Washington Department of Revenue, due the same day as your federal income tax return (typically April 15). A federal extension extends the filing deadline but not the payment deadline. Check current DOR instructions each year.
Does it apply to my 401(k) withdrawals?
No. Retirement account distributions are exempt. It applies to gains on assets held in taxable accounts.