Washington is famous for having no state income tax - but that does not mean gains are always tax-free there. Since 2022 the state has levied a capital gains excise tax that catches large investment profits.
How it works
| Feature | Detail |
|---|---|
| Rate | 7% on long-term gains above the deduction; 9.9% on gains over $1 million |
| Standard deduction | ~$278,000 for 2025 (inflation-adjusted; verify the 2026 figure) |
| Applies to | Long-term gains on stocks, bonds and similar capital assets |
| Exempt | Real estate, retirement accounts, livestock, timber, certain business sales |
| Short-term gains | Not taxed |
Because the deduction is so high, the tax only bites on large annual gains - it is designed to fall on the wealthiest residents.
Why it is unusual
Washington insists this is an excise tax on the act of selling, not an income tax (which the state constitution makes difficult). The state Supreme Court upheld it in 2023, and a 2024 ballot measure to repeal it failed. So it is here to stay for now.
What it means for investors
If you live in Washington and sell, say, $400,000 of long-term stock gains in one year, roughly $122,000 (the amount over the deduction) is taxed at 7% - about $8,540 - on top of your federal long-term tax and the 3.8% NIIT. Sell your house instead, and the state tax is zero (real estate is exempt).
See the full Washington state page and compare with no-capital-gains-tax states.
General information, not tax advice. Verify the current threshold with the Washington Department of Revenue.