StructuredSales.org
StructuredSales.org
Washington does not tax wages. It does tax many long-term capital gains. A Bellevue founder selling company stock and a Tacoma supplier selling shares in a closely held manufacturer can owe the excise tax. A Seattle landlord selling the land under a building often owes none of it.
Real estate, timber, much livestock, and depreciable business property are outside the tax. Stock, bonds, crypto, and most business goodwill are inside it, at 7% and then 9.9%. A structured installment sale changes the year of a gain that is actually taxable. It does not create a Washington bill on a sale the statute exempts. Federal tax still applies either way.
RCW 82.87 imposes an excise tax on individuals, including owners of pass-through and disregarded entities, on long-term capital gains allocated to Washington. The base rate is 7%. Beginning January 1, 2025, an additional 2.9% applies to Washington capital gains over $1 million, so the marginal rate above that line is 9.9%. A 2026 sale uses those tiers. Only individuals owe the tax. You can owe it because an entity you own sold an asset.
Washington capital gains start from federal net long-term capital gain, then adjust for exemptions and deductions. The standard deduction is annual. The Department's capital-gains page lists $278,000 for 2025 and says the figure is adjusted each year. Spouses and state-registered domestic partners share one deduction. As of October 22, 2026, that page did not show a separate 2026 dollar amount. RCW 82.87.150 tells the Department to publish the inflation adjustment by October 31. Use the published number for the year of the sale. The math below uses $278,000 only so the shape of the tax is visible.
A second deduction can matter more than the rate. You may deduct gain from selling substantially all of a qualified family-owned small business, or substantially all of your interest in it. "Substantially all" means at least 90%. You generally need a qualifying interest held for five years, and material participation by you or your family for five of the prior ten years, unless the buyer is a family member. Worldwide gross revenue in the twelve months before the sale has to sit at or under a cap that started at $10 million and is indexed. Confirm the indexed ceiling on the Department's site for the year you sell.
RCW 82.87.050 and the Department's exemption list take out real estate transferred by a recorded deed, and an interest in a privately held entity only to the extent the gain is directly attributable to real estate that entity owns directly. Real estate in a lower-tier company does not count. Also out: retirement accounts; cattle, horses, and breeding livestock when more than half of your gross income for the year, including the gain, is from farming or ranching; depreciable property under IRC §167(a)(1) and property expensed under §179; timber, timberland, and certain REIT timber distributions; commercial fishing privileges; and goodwill from the sale of a franchised auto dealership. Goodwill from a restaurant, a software firm, or a machine shop is taxable.
A Yakima orchard, a Walla Walla vineyard, or a Cascades timber tract sold by deed is outside this excise tax. The federal gain is still real. That federal layer is the subject of our farmland guide. The Oregon guide covers a neighbor that taxes the land. Stock in the packing company is different: the slice tied to land the company owns directly may be exempt, while the brand, the contracts, and the goodwill are generally taxable. Shares in an Everett or Renton supplier are in the tax. A commercial fishing privilege is outside it.
Allocation is separate from exemption. Stock and other intangibles are allocated to Washington if you are domiciled here when the sale happens. The Department's FAQ and WAC 458-20-301 say installment gain is reported as payments arrive, and that an intangible is allocated by domicile at the sale. A later move does not pull those payments out of the Washington measure. Tangible property follows location rules, including a lookback if the property was in Washington and the sale was not taxed elsewhere. Domicile is where you actually live.
If the sale closed on or after January 1, 2022, and you report it on the federal installment method, Washington includes the long-term gain in the same years. A sale that closed before 2022 is grandfathered: later payments are not in this tax even though they are on your federal return.
The annual deduction is why timing matters on a taxable sale. One large gain uses the deduction once, and the amount above $1 million is taxed at 9.9%. The same gain recognized in pieces can use the deduction in each year that has Washington gain, and it can stay inside the 7% tier. Other Washington long-term gains that year share the single deduction. A charitable deduction also exists, above the standard-deduction floor, with its own annual cap. Read RCW 82.87.080 before you count on it.
Federal rules still govern the instrument. Section 453 spreads gain only if you do not take receipt of the deferred price. In a structured sale the contract assigns that portion to an assignment company, which funds the payments with an annuity. Ordinary depreciation recapture is taxed in the year of sale under §453(i). If installment obligations from the year, still outstanding at year-end, exceed $5 million of face amount, §453A charges interest on the deferred federal tax. Related-party resales within two years are governed by §453(e). On post-2021 sales, Washington follows that federal recognition schedule.
A single filer domiciled in Washington sells long-held shares in a private company. Long-term gain allocated to Washington is $3,200,000. The shares are not a qualified family-owned small business and they are not exempt real estate. Other taxable income is $90,000. The seller compares one year of recognition with eight annual slices of $400,000 and no other Washington long-term gain. The open installment balance stays under $5 million. Interest on the payments is omitted. The standard deduction is entered as $278,000. If the Department's 2026 figure is higher, both columns fall, and the installment column falls by more, because the deduction is used eight times.
Federal figures use the 2026 single long-term brackets from Revenue Procedure 2025-32: 0% through $49,450 of taxable income, 15% through $545,500, and 20% above that. The 3.8% net investment income tax uses the $200,000 single threshold. The sketch skips credits. It is an estimate.
| Lump sum | Eight installments | |
|---|---|---|
| Washington gain before the deduction | $3,200,000 once | $400,000 a year |
| Washington excise tax | $260,278 | $68,320 |
| Federal long-term capital gain tax | $617,225 | $480,000 |
| Federal 3.8% net investment income tax | $117,420 | $88,160 |
| Combined tax on the gain | $994,923 | $636,480 |
The combined figure is about $358,000 lower under these assumptions. Each $400,000 of gain minus $278,000 leaves $122,000 taxed at 7%, and the 9.9% tier never starts. Each installment year of taxable income is $490,000, inside the 15% federal band. A deeded orchard would zero the Washington rows and leave the federal rows. Run your facts in the calculator, then with a CPA who has filed this return.
Estimates only. The $278,000 deduction is the 2025 published figure, used because a 2026 dollar amount was not on the Department's page at review. Results are not a promise of savings.
Ask three questions in order. Is the asset on the exemption list, including the direct-real-estate look-through if you are selling an entity interest? If it is a family company, does the qualified-small-business deduction fit the holding period, the participation test, and this year's revenue cap? If the gain is taxable, does an installment schedule stay inside the 7% tier and reuse the annual deduction without tripping §453A? A B&O credit may offset this tax when the same sale also drew B&O tax. That credit has its own instructions from tax year 2025. It is not automatic.
For the federal instrument, read selling a business and installment sales versus a 1031 exchange. The assignment has to be in the purchase agreement before closing.
No. Washington has no personal income tax on wages. It does impose an excise tax on long-term capital gains allocated to Washington. Beginning in 2025, and still the law for a 2026 sale, the rate is 7% on the first $1 million of Washington capital gains and 9.9% above that. Short-term gains and ordinary income are outside this excise tax.
Real estate transferred by deed is exempt. So are timber and timberland, and depreciable business property under section 167(a)(1) or section 179. Cattle, horses, and breeding livestock can be exempt if more than half of that year's gross income, counting the gain, is from farming or ranching. An interest in an entity is exempt only to the extent the gain is directly attributable to real estate that entity owns directly. Goodwill is taxable except goodwill from the sale of a franchised auto dealership.
If you use the federal installment method, Washington taxes the long-term gain in the same years and amounts, for sales on or after January 1, 2022. Gain from a sale that closed before that date is not subject to this tax, even when payments arrive later. The annual standard deduction can apply to each year in which taxable Washington gain is recognized. Other Washington long-term gains that year share the deduction.
For stock and other intangibles, the Department of Revenue allocates the gain to Washington if you were domiciled in Washington when the sale or exchange occurred. Later payments stay in the Washington measure on that test. A move after closing does not, by itself, re-source those payments. Tangible property uses location rules instead. Domicile is a facts test. Do not plan one from an article.
The Department's capital-gains page lists $278,000 for 2025 and says the amount is adjusted for inflation. Spouses and domestic partners share one deduction, not two. As of October 22, 2026, that page did not display a separate 2026 dollar figure. Statute tells the Department to publish the inflation adjustment by October 31. Use the figure published for the year of sale. The illustration on this page uses $278,000 only so the arithmetic is visible.
Last reviewed: October 22, 2026.
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