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On November 30, 2022, the Washington Supreme Court approved a request to allow the Washington Department of Revenue to implement and collect the new Washington capital gains tax.
The new tax that was originally supposed to be implemented January 1, 2022, but a Washington Superior Court ruled the capital gains tax "unconstitutional" and therefore invalid earlier this year. The state then appealed to the Washington Supreme Court. The Washington Supreme Court has not made a final decision whether the new capital gains tax is unconstitutional and is currently set to hear oral arguments January 26.
What does this mean to you?
Individuals who have Washington-sourced long-term capital gains that occurred in tax year 2022 and exceeded $250,000 will be required to file Washington capital gains tax and pay the tax due by April 15, 2023. The tax rate is 7%.
Washington-sourced long-term capital gains includes gains from the sales or exchange of capital assets, which includes stocks, bonds, and business interests. These gains include capital gains that are "passed through" from an ownership in a pass-through entity. The tax specifically excludes gains from real estate, assets held in retirement accounts, and interest in certain qualified family-owned small businesses.
We expect that the Washington Department of Revenue will issue regulations and forms soon regarding this new capital gains tax.
It is possible that the Washington Supreme Court may ultimately uphold the Superior Court's decision, but as of this point in time, taxpayers should be aware of this filing requirement due to the November 30 approval.
Please reach out to your Delap advisor with any questions.