Dear Clients of SKJ & Company, P.S.:
WA State Legislature passed ESSB 5096 which introduced 7% capital gains tax to Washington State taxpayers. Following are the highlights of the new tax:
The tax is effective on 1/1/2022. The first tax return and payment is due on 4/18/2023.
The following capital gains income is exempt from this tax:
Interests in a privately-held entity to the extent that the capital gain or loss from such sale or exchange is directly attributable to the real estate owned directly by such entity.
Assets held in certain retirement accounts.
Assets subject to condemnation, or sold or exchanged under imminent threat of condemnation.
Certain livestock related to farming or ranching.
Assets used in a trade or business to the extent those assets are depreciable under Title 26 U.S.C. Sec. 167(a)(1) of the internal revenue code or qualify for expensing under Title 26 U.S.C. Sec. 179 of the internal revenue code.
Timber, timberlands, and dividends and distributions from real estate investment trusts derived from gains from the sale or exchange of timber or timberlands.
Commercial fishing privileges.
Goodwill received from the sale of a franchised auto dealership.
The following deductions apply:
A standard deduction of $250,000 per year per individual, married couple, or domestic partnership. This amount is adjusted for inflation annually.
The long-term capital gain from an individual’s sale of all or substantially all of a qualified family-owned small business.
Charitable donations in excess of $250,000 per year per taxpayer. The charitable donations deduction cannot exceed $100,000 per year per taxpayer. These amounts are adjusted for inflation annually.
Following tax credits are available:
A business and occupation (B&O) tax credit is included for B&O taxes due on the same sale or exchange which is subject to the Washington capital gains tax.
A Washington capital gains tax credit is included for the amount of any legally imposed income or excise tax paid by the taxpayer to another taxing jurisdiction on capital gains derived from capital assets within the other taxing jurisdiction to the extent such capital gains are included in the taxpayer’s Washington capital gains.
For more information, please visit WA Department of Revenue’s webpage at https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax.
SKJ & Company, P.S.