Capital Gains.
Most property owned by an individual for personal purposes is considered a capital asset, including houses, furniture, cars, stocks, and bonds. The sale of these items may result in a capital loss or a capital gain. Short-term capital gains or losses are gains or losses from assets held for one year or less. Long-term capital gains or losses are gains or losses from assets held for more than one year. These capital gains and losses may have federal and state tax implications for an individual.
The state imposes a 7 percent excise tax on the adjusted capital gains of an individual for the privilege of selling or exchanging long-term capital assets less a standard deduction of $250,000 for all filers, whether filing as an individual or jointly. The standard deduction is adjusted annually for inflation.
The tax applies only to those capital gains allocated to Washington, which means the long-term capital assets for the taxpayer must have certain ties to Washington.
For intangible personal property, the state capital gains tax will apply if the taxpayer was domiciled in Washington at the time of the sale or exchange. A "resident" is a person:
If a person maintained no permanent place of abode in this state during the entire taxable year, maintained a permanent place of abode outside of Washington for an entire taxable year, and spent an aggregate of no more than 30 days in Washington, the person is considered a nonresident.
The state capital gains tax applies to tangible personal property if:
The sale or exchange of certain assets is exempt from the state capital gains tax, including, real estate, common types of retirement assets, and timberlands.
There are credits and deductions available to reduce or eliminate a person's tax liability, including a deduction for qualified charitable donations.
Capital gains taxes are due and payable on April 15 for long-term capital gains realized during the immediately preceding calendar year.
Taxpayers may make capital gains tax payments up to six months before the due date. Interest may not be assessed for the prepayment period if it is later determined that the taxpayer overpaid the taxes owed for that tax period and receive a remittance.
(In support) When someone sells long-term capital assets and files their federal return, they can deduct state and local taxes for the year they were incurred. Due to a timing issue, a taxpayer will not pay any Washington capital gains tax until the following tax year. Therefore, they lose the ability to deduct these taxes on their federal return. This bill simply allows for a prepayment of the Washington capital gains tax so taxpayers can take advantage of the federal deduction. The are safeguards in the bill to prevent taxpayers using the state to earn interest on an overpayment. This small fix will help out taxpayers.
(Opposed) None.
(Other) There is still some programmatic work to be done to allow for prepayments. There may be some limited utility for the bill due to systems work on federal "My File" programs that are done during this same time period. This ultimately may hamper some attempts to prepay their taxes. However, the DOR is happy to work within its own system to accommodate prepayments.