On March 24, the Washington State Supreme Court ruled that the Washington capital gains tax is constitutional.

What does this mean for you?

Individuals who have Washington-sourced long-term capital gains in tax year 2022 that exceeded $250,000 are required to file the Washington capital gains tax return. They must pay any tax due by April 17, 2023. The tax rate is 7%.

Washington-sourced long-term capital gains include gains from the sales or exchange of capital assets, which include stocks, bonds, and business interests. These gains include capital gains that are "passed through" from an individual's 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.

If individuals receive a filing extension for their federal income tax return, they are entitled to the same filing extension for the capital gains tax return. However, the due date for paying the capital gains tax does not change and is not extended.

The Washington Department of Revenue has issued regulations, and forms are available online regarding this new capital gains tax.

Background on the Washington Capital Gains Tax

The new tax was originally supposed to be implemented on January 1, 2022. However, a Washington Superior Court ruled the capital gains tax unconstitutional and therefore invalid. The state then appealed to the Washington Supreme Court.

On November 30, 2022, the Washington Supreme Court approved a request to allow the Washington Department of Revenue to implement and collect the new capital gains tax. At the time, the Washington Supreme Court had not made a final decision about whether the new capital gains tax was unconstitutional.

The court started hearing oral arguments January 26, 2023.

Please reach out to your Delap advisor with any questions about this new tax.

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