Everyone says Washington has no income tax, true. But Washington quietly added a 7% capital gains tax on large gains (9.9% over $1M). Here's who it hits, the real-estate exception, and how to defer it.
A plain-English guide for sellers: how a structured installment sale defers the tax when you sell a business, practice, or property — the math, the alternatives, and how to know if your deal fits.
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📞 Hans Goldstein · 213-290-4977 · CA Insurance License #4322192 · Independent §453 specialist · Goldstein & Co. LLC
Washington is famous for having no state income tax, which leads many sellers to assume capital gains are tax-free at the state level. That changed: Washington now imposes a 7% tax on long-term capital gains above roughly $270,000 per year, rising to 9.9% on gains over $1 million. It catches a lot of business and stock sellers by surprise.
Washington's capital gains tax does not apply to real estate sales. But it absolutely applies to the sale of a business, stock, or other appreciated assets above the threshold, exactly the large, lumpy gains where it hurts most. Add the federal rate (up to 20%) and the 3.8% NIIT, and a big business or stock sale in Washington is taxed heavily despite the "no income tax" reputation.
A §453 structured installment sale spreads the proceeds, and the gain, across future years. Because Washington's 7%/9.9% tax kicks in only above annual thresholds, spreading the gain can keep each year's gain under the $1M (or even the ~$270k) line, reducing or avoiding the state tax entirely, while also lowering the federal bracket and the 3.8% surtax.
Washington's "no income tax" reputation hides a real 7-9.9% capital gains tax on big business and stock sales. Spreading the gain can keep you under the thresholds. Run your numbers on the calculator first.
Yes, despite having no general income tax, Washington imposes a 7% tax on long-term capital gains above roughly $270,000 per year, and 9.9% on gains over $1 million. It does not apply to real estate sales.
Real estate sales are exempt, along with retirement accounts and certain other assets. The tax mainly hits sales of businesses, stock, and other appreciated investments above the annual threshold.
Because the tax is threshold-based, a §453 structured installment sale that spreads the gain across years can keep each year's gain under the $1 million (or ~$270k) threshold, reducing or avoiding the state tax, while also lowering federal tax.
Yes. The federal rate (up to 20%) and the 3.8% NIIT apply regardless of state. Washington's tax is in addition to those for non-real-estate gains over the threshold.
Use the free calculator and select Washington; it estimates your federal capital gains, NIIT, and recapture (note WA's special 7% applies mainly to non-real-estate gains over the threshold), plus the savings from deferring.
Before you sign anything, run your numbers with someone who structures the deal to be tax-smart and audit-ready from day one.
Call 213-340-2018 Run the Numbers →