You may recall that in 2021 Washington state passed legislation to implement a 7% capital gains tax on certain asset sales, with the tax applying to profits that exceed $250,000. The assets subject to this tax are, in general, stocks, bonds, business interests, and tangible property, but not real estate. There are actually quite a few asset classifications that are exempt from this tax, so check with your tax preparer.
After a lawsuit was filed and tried in Douglas County, the trial court judge declared the tax unconstitutional and invalid in March of 2022. As expected, the state appealed and just recently a “stay of invalidity”, for lack of a better term, was issued. A hearing before the state Supreme Court is scheduled for January 2023.
What this means for the time being is that the tax is indeed in effect and will need to be paid on sales that take or have taken place in 2022. There will be an online portal to file a return and pay the tax starting in February 2023. The tax is due April 18th.
After this appeal is heard (scheduled to start January 26th) if the Supreme Court finds the tax to be unconstitutional, any tax payments made will be refunded with interest.
We will keep an eye on this developing storyline, but we would recommend that in the meantime you check with your tax preparer for more information if you had sales of any of the assets described above with gain approaching or exceeding $250,000. That exemption amount applies both to married and unmarried filers – it is not $250,000 per person.
For general questions on this tax and how it might affect you, please feel free to reach out to your Relationship Manager.
As Vice President and Senior Wealth Advisor, Greg provides financial analysis to high net worth individuals. He is the author of several articles for various publications and nonprofit organizations on estate and financial planning subjects.