[WSBAPT] New Washington Estate Tax Exemption and Rates + Changes to Capital Gains Tax

Tue May 20 16:25:46 PDT 2025

Great email, Liberty -- thank you!

Obnoxious but well-meaning nit: The 2.9% capital gains surcharge is retroactive to 1/1/25, which is noted in your bullets at top of your email. Just in case anyone is reading the text further below, I changed 2026 to 2025 under the header “Washington Capital Gains Tax” – intending only to help anyone wishing to forward or print this. 😉

Best, Josh

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Liberty Upton
Sent: Tuesday, May 20, 2025 3:52 PM
To: wsbapt at lists.wsbarppt.com; WSBA Real Property (wsbarp at LISTS.WSBARPPT.COM) <wsbarp at LISTS.WSBARPPT.COM>
Subject: [WSBAPT] New Washington Estate Tax Exemption and Rates + Changes to Capital Gains Tax

You don't often get email from lupton at khbblaw.com<mailto:lupton at khbblaw.com>. Learn why this is important<https://aka.ms/LearnAboutSenderIdentification>
Engrossed Substitute Senate Bill 5813
Changes to Washington Estate Tax Exemption and Rates; Washington Capital Gains; and Addition of Qualified Non-Familial Heir for QFOBI

WHAT YOU NEED TO KNOW:

  *   New law goes into effect on July 1, 2025, for WA Exemption and tax rates

     *   WA Exemption will increase from $2,193,000 to $3,000,000
     *   Annual inflation adjustments to the WA Exemption will begin on January 1, 2026
     *   Estate tax rates will increase from a top rate of 20% to a top rate of 35%

  *   Starting January 1, 2025, an additional 2.9% on long-term capital gains over $1,000,000
  *   Definitions of “qualified non-familial heir” and “employee of a farm” added for QFOBI

ADDITIONAL INFORMATION:

Washington Estate Tax Exemption and Rates
To raise revenue to balance the budget, the Washington State Legislature recently made significant changes to Washington estate tax laws that both increase the Washington estate tax exemption (“WA Exemption”) and increase the tax rates for estates that exceed the WA Exemption amount. On April 26, 2025, the Washington State Legislature passed the Engrossed Substitute Senate Bill 5813. The Governor had several options: sign the bill into law, veto it, or allow it to become law without his signature. The Governor signed the bill on May 20, 2025.

Washington Exemption and Tax Rates before July 1, 2025: The WA Exemption is currently $2,193,000 per person and has been frozen at this amount since 2018. While Washington law indexed the WA Exemption for inflation, the inflation index referenced in the law changed in 2018. Currently, RCW 83.100.020(1)(b) references the consumer price index (“CPI”) for the Seattle-Tacoma-Bremerton area as calculated by the US Bureau of Labor and Statistics (“USBLS”). As of January 1, 2018, the USBLS no longer calculated the CPI for the Seattle-Tacoma-Bremerton area. Instead, the USBLS began calculating the Seattle-Tacoma-Bellevue area. After the USBLS 2018 CPI change, the Washington Department of Revenue took the position that the WA Exemption could not be increased for inflation because the CPI referenced in the law (for Seattle-Tacoma-Bremerton) no longer existed. Since 2018, there have been several attempts to try to fix the referenced CPI. The $2,193,000 WA Exemption remains in effect until July 1, 2025.

Currently, Washington estate tax rates range from 10% to 20% on estates that exceed $2,193,000:
[cid:image001.png at 01DBC9A3.D5DACC60]

WA Exemption and Tax Rates on or after July 1, 2025: Under Senate Bill 5813, the Washington State Legislature revised the CPI referenced in Washington law and made a one-time adjustment to make up for seven years of inflation adjustments that did not occur between 2018 and 2025. Starting on July 1, 2025, the new WA Exemption will be $3,000,000. The WA Exemption will be adjusted annually for inflation, starting on January 1, 2026. Additionally, if the USBLS changes the CPI for the Seattle area in the future, the CPI for purposes of Washington law will automatically update to whatever index includes Seattle and the surrounding area (without further action needed by the Washington State Legislature).

The Washington State Legislature also increased the estate tax rates. Starting on July 1, 2025, Washington estate tax rates will range from 10% to 35% on estates that exceed the WA Exemption:
[cid:image002.png at 01DBC9A3.D5DACC60]

Washington Capital Gains Tax
A 7% excised tax is imposed in Washington on long-term capital gains that exceed a $270,000 standard deduction. Starting January 1, 2025, for long-term capital gains that exceed $1,000,000 an additional 2.9% excise tax is imposed. No changes were made to existing exemptions from the long-term capital gains excise tax.

Farm Employee – Qualified Non-Familial Heir
Additional definitions of “Employee of a farm” and “Qualified nonfamilial heir” were added. This means that individuals who are not family members, but who are deemed “qualified,” can benefit from the QFOBI deduction when inheriting a family-owned business interest.

Engrossed Substitute Senate Bill 5813 as passed by the Washington State Legislature: https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bills/Senate%20Passed%20Legislature/5813-S.PL.pdf?q=20250520154348

ADDITIONAL BILLS THAT IMPACT PROBATE AND TRUST SECTION:

  *   HB 1215/SB 5096: Removing references to pregnancy from the model directive form under the natural death act. https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bills/House%20Passed%20Legislature/1215.PL.pdf?q=20250517140321

  *   SB 5037: Enacting the Uniform Custodial Trust Act. https://lawfilesext.leg.wa.gov/biennium/2025-26/Pdf/Bills/Session%20Laws/Senate/5037.SL.pdf?q=20250517140218

Liberty Upton
Attorney
[cid:image003.png at 01DBC9A3.D5DACC60]
Tel (206) 382-4414  (ex. 232) / Fax (206) 382-4412 / lupton at khbblaw.com<mailto:lupton at khbblaw.com>
705 Second Avenue / Suite 800 / Seattle, WA 98104 / www.khbblaw.com<http://www.khbblaw.com/>

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