Washington state’s Department of Revenue has issued clarification regarding the state’s capital gains tax under WAC 458-20-301. The finalised regulations define and illustrate the capital gains tax, and provides explanation about the treatment of specific transactions.

Beginning 1 January, 2022, Washington law imposes a 7% excise tax on individuals who sell or exchange long-term capital assets with capital gains exceeding USD 250,000 as reported on their federal tax return.

Under the final regulations, the capital gains excise tax in Washington is based on the taxpayer’s state capital gains. This calculation typically starts with the taxpayer’s federal net long-term capital gain, with adjustments made by specific statutory additions and subtractions. Any amount of long-term capital loss from a sale or exchange that is exempt from the capital gains excise tax, to the extent such loss was included in calculating federal net long-term capital gain.

The final regulations state that statutory deductions further adjust the capital gain to determine the taxpayer’s Washington capital gains amount. If the Washington capital gains are less than zero for a taxable year, no capital gains tax needs to be paid.

The final regulations also clarify that any amount of capital loss carryforward from a sale or exchange that occurred before 1 January, 2022, to the extent such loss was included in calculating federal net long-term capital gain, and less any long-term capital gain from an instalment sale that occurred before 1 January, 2022, to the extent such gain was included in calculating federal net long-term capital gain.

The finalised regulations define and illustrate the capital gains tax, detailing the treatment of specific transactions. These include adjusted capital gain, domicile, family; federal net long-term capital gain; grantor trust; intangible personal property; long-term capital asset; materially participated; non-grantor trust; permanent place of abode; principally directed or managed within the state of washington; qualified organisation; qualifying interest; real estate; resident; tangible personal property; taxpayer; and Washington capital gains.