Washington Tax Changes 2025: Capital Gains, Estate Tax Increases, and Wealth Tax Update

Washington State recently concluded a legislative session marked by the most significant tax increases in its history. The 2025 tax reforms impact capital gains, estate tax exemptions, and rates, including a proposed but stalled wealth tax. Below are the key highlights:

Washington Capital Gains Tax

Retroactive to January 1, 2025, capital gains exceeding $1 million are now subject to a 9.9% tax, up from the previous 7%. Gains up to $1 million continue to be taxed at 7%. This increase affects high-income residents and is designed to raise additional state revenue.

Washington Estate Tax Changes

Effective July 1, 2025, the estate tax exemption rises from $2.193 million to $3 million, with indexing for inflation. However, estates over $8.8 million face higher marginal tax rates, ranging from 10% to 35% on taxable estate portions. Combined with the federal estate tax, which peaks at 40% over $13.99 million, some estates may face total marginal rates near 61%.

Proposed Wealth Tax Stalls

A 0.5% tax on financial assets over $50 million, including stocks, bonds, mutual funds, and ETFs, was proposed under Senate Bill ESSB 5797. Though the Senate passed it 26-21, the House did not advance the bill, and Governor Ferguson opposed using it for budget balancing. Legislative interest remains, so similar proposals may arise again.

Washington residents with significant capital gains or estates should consider proactive tax planning to mitigate these changes.

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