How Washington capital gains tax on rental property works
A rental sale in Washington is taxed federally like anywhere else: depreciation recapture at your ordinary rates up to 25%, the rest of a long-term gain at 0%, 15% or 20%, and the 3.8% net investment income tax at higher incomes. Washington's capital gains tax exempts real estate, and it has no income tax.
- Washington's capital gains excise tax applies to long-term gains on assets such as stocks, but sales of real estate, including rental property, are exempt.
Washington's real estate excise tax
Washington's capital gains tax exempts real estate, but every sale owes the real estate excise tax (REET), and the seller usually pays it. For sales from 2023 through 2026, the state rate is 1.1% up to $525,000, 1.28% up to $1,525,000, 2.75% up to $3,025,000 and 3% above that, each applying to the part of the price within its range, like tax brackets. The example's $500,000 sale owes $5,500.00 at the state rate.
Cities and counties add a local REET on top. From January 1, 2027, the state tiers rise to $551,000, $1,551,000 and $3,051,000.
Worked example: selling a Washington rental
A single investor earning $90,000 bought a Washington rental in June 2016 for $300,000, paid $6,000 in closing costs and later spent $20,000 on improvements. They sell in November 2026 for $500,000 with 6% selling costs. Estimated depreciation of $92,727.27 leaves a gain of $236,727.27.
| Amount | |
|---|---|
| Federal income tax | $43,218.54 |
| Net investment income tax | $4,815.64 |
| Washington tax | $0.00 |
| Total tax | $48,034.18 |
| Cash kept after the $150,000 mortgage payoff | $271,965.82 |
The whole $48,034.18 is federal tax, 20.3% of the gain.
| Situation | Gain | Washington tax | Total tax |
|---|---|---|---|
| Single, $40,000 of other income | $236,727.27 | $0.00 | $42,484.18 |
| Single, $90,000 of other income (the example) | $236,727.27 | $0.00 | $48,034.18 |
| Married, $200,000 of other income | $236,727.27 | $0.00 | $50,078.18 |
| A flip sold after 9 months | $39,800.00 | $0.00 | $8,756.00 |
The first three rows sell the same property; the flip is a $360,000 sale of a house bought for $250,000 with $40,000 of work, held under a year, so its gain is short-term.
Washington vs. neighboring states
State tax on the same $500,000 sale in Idaho and Oregon, lowest first. Each state links to its own calculator.
| State | How the gain is taxed | State tax | Total tax |
|---|---|---|---|
| Washington | Washington's capital gains tax exempts real estate, and it has no income tax. | $0.00 | $48,034.18 |
| Idaho | 60% of the gain on Idaho real property held at least 12 months is deducted; the rest is taxed at 5.3%. | $5,018.62 | $53,052.80 |
| Oregon | Taxed as ordinary income at the state's income tax rates. | $23,256.03 | $71,290.21 |
Where the property is matters as much as where you live: states tax gains on real estate located in them, so selling a rental in another state usually means filing there too.
All 50 states and D.C. are compared on the same sale in the state tax on selling a rental table, which you can sort and download.
Self-employed in Washington? The Washington 1099 tax calculator works out the federal income and self-employment taxes on freelance income, with the quarterly estimated payments.
States with similar rules
Washington is one of 10 states that don't tax the gain on a rental sale. These are the closest to it on the same $500,000 sale:
- Tennessee: No state income tax, so no Tennessee tax on the gain. Its page covers Tennessee's recordation taxes.
- Texas: No state income tax, so no Texas tax on the gain. Its page covers Texas's ban on new real estate transfer taxes.
- Wyoming: No state income tax, so no Wyoming tax on the gain. Its page covers Wyoming's statement of consideration.
- Alaska: No state income tax, so no Alaska tax on the gain. Its page covers Transfer taxes in Alaska.
Before you sell a rental in Washington
The sale of a rental goes on IRS Form 4797, which carries the gain to Schedule D and the depreciation part to the unrecaptured section 1250 gain worksheet. Before you file, gather the closing statements from both the purchase and the sale, your depreciation schedules (Form 4562 or your tax software's asset list) and receipts for improvements. Each of them changes your adjusted basis, and with it the gain.
A large gain can also bring an underpayment penalty if no tax is paid on it during the year. Federally, you avoid the penalty by paying, through withholding or estimated payments, at least 90% of this year's tax or 100% of last year's (110% if last year's AGI was over $150,000). Sending the tax on the sale with the next quarterly estimate is the simplest way to stay inside those rules. Because Washington doesn't tax the gain, there is no state estimate to make.
If the rental produced losses you couldn't deduct under the passive activity rules, selling your entire interest to an unrelated buyer generally frees them in the year of the sale, which offsets part of the gain.
With no Washington tax on the gain, the federal tax is the whole bill, so federal planning carries more weight: holding the property more than a year, spreading the gain over several years with an installment sale, selling in a year with less other income, or deferring all of it with a 1031 exchange into another investment property. Turn on the calculator's second scenario to see how each choice changes the tax and the cash you keep. If you once lived in the property, part of the gain may also qualify for the home sale exclusion, though the depreciation part stays taxable.
The bottom line
Rental property capital gains tax in Washington is federal only: $48,034.18 on the example's $236,727.27 gain.
Enter your own numbers in the calculator to estimate your Washington capital gains tax on rental property, compare a sale with a 1031 exchange, and confirm the details with the Washington State Department of Revenue or a tax professional before you sell.
Frequently asked questions
Does Washington tax capital gains on rental property?
No. Washington's capital gains tax exempts real estate, and it has no income tax. But the real estate excise tax applies to every sale, starting at 1.1% of the price, and the seller usually pays it. You still owe federal tax on the gain, which is the sale price minus selling costs and your adjusted basis (what you paid, plus improvements, minus depreciation): on a $500,000 sale of a rental bought for $300,000 in 2016, a single seller earning $90,000 owes about $48,034.18 in federal income tax and net investment income tax. The calculator above adds up the taxes on selling rental property in Washington for your own numbers.
How is depreciation recapture taxed in Washington?
Federally, the part of the gain that comes from depreciation, called unrecaptured section 1250 gain or depreciation recapture, is taxed at your ordinary rates up to 25%. Washington doesn't tax any part of the gain, so only the federal tax applies.
Can a 1031 exchange defer Washington tax on a rental sale?
With no Washington tax on the gain there is nothing to defer at the state level, but a 1031 exchange still defers the federal tax if you reinvest in like-kind property within the 45- and 180-day deadlines.
Does the 3.8% net investment income tax apply in Washington?
Yes. The net investment income tax is federal, so it applies the same way in every state: 3.8% of the gain or of your modified adjusted gross income above $200,000 ($250,000 joint), whichever is smaller. In the example it adds $4,815.64.
Do I owe Washington tax if I sell a rental there but live in another state?
Not to Washington. Your home state may tax the gain if it has an income tax.
Sources and further reading
- Capital gains tax (opens in a new tab), Washington State Department of Revenue
- Real estate excise tax (opens in a new tab), Washington State Department of Revenue
- Washington State Department of Revenue (opens in a new tab), State of Washington
- Publication 544, Sales and Other Dispositions of Assets (opens in a new tab), Internal Revenue Service
- Instructions for Schedule D (Form 1040) (opens in a new tab), Internal Revenue Service
Related calculators
- Rental Property Depreciation CalculatorDon't know how much depreciation you've taken? Build the schedule from the IRS tables, improvements included.
- 1031 Exchange CalculatorBuying another rental with the proceeds? See how much of the gain a 1031 exchange defers.
- Hard Money Loan CalculatorFlipping your next property? Model the rehab loan, cash to close and the flip's profit before tax.