On April 27, 2019, the Washington state legislature passed bill SB 5998, increasing Washington’s Real Estate Excise Tax (REET). The final version of the bill is expected to be signed by Governor Inslee shortly, and will go into effect January 1, 2020. Below is a summary of the current law and the changes you will see in 2020:
Current lawIndividuals, corporations, and other entities owe real estate excise tax (REET) on their sales of real property, unless the sale qualifies for an exemption from the tax. Taxable sales include the transfers of ownership in real property and in controlling interests (50% or more of the ownership) in entities that own real property in Washington. Real property includes any interest in land or anything attached to land. The state tax rate is 1.28%. Local jurisdictions may add additional local rates. In King, Pierce and Snohomish counties, the additional county tax is 0.5%. The combined state and local rate in most areas is 1.78%.
New law
Senate Bill 5998 which is expected to be signed by the governor establishes a graduated real estate excise tax (REET). The changes would take effect January 1, 2020.
Here is how the current REET compares to what is coming:
The new graduated rates will not apply to sales of timberland or agricultural land, and will remain subject to the 1.28% flat REET rate (1.78% combined rate).
New law also changes the taxation rule as it relates to a transfer of a “controlling interest”
Under the current law, the REET is imposed when there is transfer or acquisition of a “controlling interest” in real estate or an entity holding real property. A “controlling interest” transfer is defined under the current law as a transfer of 50% or more within any “twelve month period”. The new law expands the period for measuring whether a transfer of a “controlling interest” has occurred from 12 to 36 months. This is a major change and will substantially impact ownership transfer planning on this front.
Sweeney Conrad’s advisors are here to help you navigate this and all of the recent tax reform changes.
Melanie Abigania, Tax Principal
Melanie specializes in tax compliance, consulting, and planning for high net worth individuals, trusts, and estates. She acts as a trusted advisor to her clients, assisting them on small business issues, income tax planning, and estate and gift tax planning. She serves clients in industries such as real estate development, professional services, wholesale, manufacturing, and provides tax and compliance services for individuals, partnerships, trusts, estates, and corporations.