Washington’s legislature passed a new capital gains tax that will take effect on January 1, 2022. The tax will be imposed on Washington residents at 7 percent on long-term capital gains (assets held for longer than a year) that exceed $250,000 annually. Married couples share a single $250,000 standard deduction. The tax will also apply to the sale of tangible personal property located in Washington by non-residents. The tax does not apply to legal entities (C Corporations and certain trusts), however gains generated through pass through entities (partnership, S corporations and some trusts) will be taxed at the individual level and subject to the new long-term capital gains tax, if applicable.
The act exempts the following classes of assets:
- All real estate, both land and improvements
- Assets transferred as part of a condemnation proceeding
- Livestock sales
- Certain commercial fishing privileges
- Business property subject to depreciation
- Timber sales
- Assets held in retirement accounts
- Goodwill associated with franchised auto dealerships
There is also an exemption from the sale of an interest in a qualified family-owned small business (with less than $10,000,000 in annual revenue). Finally, a charitable deduction is available for contributions to Washington charities in excess of $250,000 and is limited to a maximum deduction of $100,000 per taxpayer, per year.
Note that this is a cursory review of the law and it is important to review the provisions in detail regarding your specific situation.
At least one suit has already been filed challenging this tax and there are surely more to come. That said, it is currently law and various planning considerations should be evaluated if you expect to realize long-term capital gains (not considered exempt) starting in 2022 of more than $250,000. We are here to help with these evaluations and can discuss any planning opportunities with you as the year-end approaches.
About the Author
Todd Flynn, CPA, CFP® is a Principal at Soundmark Wealth Management. Todd works closely with physicians, business owners, and other successful and accomplished individuals to help them define their financial goals and implement an ongoing financial planning process.
This content is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Soundmark Wealth Management, LLC, its advisors and its affiliates do not provide tax or accounting services. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax or accounting advice. Please consult with your tax advisor prior to engaging in any transaction.