Capital Gains Tax.

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 state capital gains 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 tax will apply if the taxpayer was domiciled in Washington at the time of the sale or exchange.  A "resident" is a person:

1. domiciled in Washington during the entire taxable year; or
2. not domiciled in Washington during the taxable year but who maintained a place of abode and was physically present in Washington for more than 183 days during the taxable year; such a person will be a resident for that portion of the year in which they were domiciled or maintained a place of abode. 

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:

1. the property was located in Washington at the time of the sale or exchange; or
2. the property was located in Washington at any time during the current or immediately preceding taxable year, the taxpayer was a Washington resident at the time of the sale or exchange, and the sale was not subject to income or excise tax on the adjusted capital gain by another taxing jurisdiction.

The sale or exchanges of the following types of assets are exempt from the state capital gains tax:

• real estate;
• interest in an entity owning real property, but only to the extent that any long-term capital gain or loss from such sale or exchange is directly attributable to the real estate owned directly by such entity;
• common types of retirement assets;
• assets condemned by the government;
• cattle, horses, or breeding livestock, if 50 percent of the taxpayer's gross income for the year is from farming or ranching;
• commercial fishing privileges;
• certain depreciable property used in a trade or business;
• goodwill received from the sale of an automobile dealership; and
• timber, timberlands, or receipts from a real estate investment trust.

There are credits and deductions available to reduce or eliminate a person's tax liability, which include:

• a credit to reduce business and occupation tax liability based on the payment of the Washington capital gains tax; 
• a credit to reduce a person's Washington capital gains tax liability based on the payment of income or excise tax imposed on the asset and paid by the person to another jurisdiction;
• a deduction for taxes prohibited by the United States or Washington constitutions or laws;
• a deduction from the amount of adjusted capital gain for qualified charitable donations; and
• a deduction from the amount of adjusted capital gain for the sale of a qualified family-owned small business.

Tax Revenues Dedicated to the Education Legacy Trust Account and Common School Construction Account.

The Education Legacy Trust Account (ELTA) is used to fund kindergarten through grade 12 and higher education purposes as well as childcare and early learning programs.  The Common School Construction Account is appropriated through the biennial state capital budget to provide financing for the construction of facilities for common schools.

The first $500 million in taxes, penalties, and interest collected from the state capital gains tax each fiscal year must be deposited into the ELTA.  Any remaining proceeds are deposited into the Common School Construction Account.  The amount deposited into the ELTA is adjusted annually for inflation.

Washington Estate Tax.
Washington does not have an inheritance tax.  However, Washington does have an estate tax.  In general terms, an inheritance tax is a tax on the beneficiaries of an estate whereas an estate tax is a tax on the decedent's estate.  If you are a person living in Washington who inherits property or money, you do not owe Washington taxes on your inheritance.  The estate tax is a tax on the right to transfer property at the time of death.  A person residing in Washington or a non-resident who owns property in Washington may owe an estate tax depending on the value of their estate.
 
The executor for a decedent's estate is required to file an estate tax return if the gross estate meets the filing threshold for the date of death.  The current threshold amount is $2.193 million.  If the total gross estate is below the filing threshold, no estate tax return needs to be filed.  If the total gross estate is above the filing threshold, an estate tax return must be filed even if no tax would be due.  If a Washington return is required to be filed and a federal estate tax return is filed, a copy of the federal return must be included with the Washington estate tax filing.
 
All assets owned by the decedent on the date of death should be included in the estate.  All assets, even if located in another state, should be reported on the estate tax return as part of the gross estate.

Deductions and Adjustments to the Taxable Estate.
Deductions are made from the total gross estate, including funeral expenses, debts of the decedent, and charitable gifts and bequests. 

For the estate of a married decedent, all of the community property and all of the decedent's separate property are reported on the estate tax return.  The community property assets are then reduced by 50 percent to reflect the decedent's share of the property.  Even if the entire estate will pass to the surviving spouse and no taxes may be due, an estate tax return must be filed if the decedent's half of the community property plus the decedent's separate property meets the filing threshold.

The value of a qualified family-owned business interest (QFOBI) may be deducted from the taxable value of an estate so long as certain requirements are met.  The QFOBI deduction is limited to the lesser value of the QFOBI or $2.5 million.  An heir to the QFOBI must continue the trade or business for three years from the date of death.  Failure to meet this requirement for the QFOBI will result in additional tax due.

The value of farms and timberlands may also be deducted from the taxable value of an estate so long as certain requirements are met.  This deduction applies to land, farm structures, and farming equipment.  It is an unlimited deduction and an heir to the farm does not have to continue farming in order for the estate to take the deduction. 

Exclusion Amount.
The adjusted taxable estate is the value of the estate after all deductions and adjustments are made.  The applicable exclusion amount is an amount deducted from the adjusted taxable estate prior to calculating estate tax due.  The current exclusion amount is $2.193 million.  The exclusion amount was adjusted annually based on the Consumer Price Index (CPI) for the Seattle-Tacoma-Bremerton metropolitan area as calculated by the United States Bureau of Labor Statistics (USBLS).  However, the CPI for this statistical area is no longer calculated by the USBLS, and as a result, the exclusion amount for the estate tax has not changed since 2018.

Washington Taxable Estate Tax Rates.
For deaths occurring on or after January 1, 2014, the Washington estate tax rates are as follows on the decedent's Washington taxable estate, which is the remaining estate value after all allowable adjustments and deductions, including the exclusion amount:
 

 
Estate Tax Revenues.
The proceeds of the estate tax are deposited into the ELTA. 

Estate Tax Deduction for Farms.
Deductions are made from the total gross estate, including funeral expenses, debts of the decedent, and charitable gifts and bequests. 

The value of farms and timberlands may also be deducted from the taxable value of an estate so long as certain requirements are met:

• At the time of death, the decedent must have been a citizen or resident of the United States (US).
• The farm property must pass or be acquired by a qualified heir from the decedent.
• The farm must have been used for a farming purpose at the time of the decedent's death.
• The farm property must make up at least 50 percent of the total estate's adjusted gross value. 

This deduction applies to land, farm structures, and farming equipment used for a farming purpose.  A farming purpose can be:

• cultivating the soil;
• raising or harvesting any agricultural or horticultural commodity;
• handling, drying, packing, grading, or storing on a farm, any agricultural or horticultural commodity in its unmanufactured state, but only if the owner, tenant, or operator of the farm regularly produces more than one-half of such commodity; or
• planting, cultivating, caring for, or cutting of trees, or preparation, other than milling, of trees for the market.

In order for real property to qualify for the farm deduction during the eight-year period ending on the date of the decedent's death, there must be five years or more in which the decedent or a member of the decedent's family owned the real property, and the property was used for a qualified use.  In addition, there must be material participation by the decedent or a member of the decedent's family.  Material participation is a factual determination and is based on US Internal Revenue Service Code Section 1402(a)(1).

A member of the decedent's family is an ancestor of the decedent, a spouse or registered domestic partner, a lineal descendent of the individual or the individual's spouse or registered domestic partner, a parent of an individual, a spouse of any lineal descendent, or a legally adopted child of an individual. 

A tenant farmer may qualify for the farm deduction if the requirements are met.  Farm property in a closely held partnership, corporation, or trust can qualify. 

It is an unlimited deduction, and an heir to the farm does not have to continue farming in order for the estate to take the deduction. 

The amended bill:

• removes the provision that makes the changes to the estate tax retroactive to persons dying on or after January 1, 2025;
• makes all changes to the estate tax apply to persons dying on or after July 1, 2025; and
• adds "qualified nonfamilial heir" to the estate tax deduction for farms.