Despite the constitutionality of Washington’s capital gains tax still undecided by the courts and no hint at when we will see a decision, the filing portal is now open. The Washington Supreme Court granted the Department of Revenue (DOR) the authority to collect the tax pending a decision, so 2022 payments and extensions or returns are due on April 18th.
The Washington capital gains tax is a 7% tax on adjusted long term capital gains in excess of $250,000. The tax is imposed on individuals, on gains received directly or through a pass-through entity and reported on their individual return.
There are several exemptions, including gains on direct sales of real estate, most retirement accounts, gains on depreciable asset sales and certain gains from pass-through entities related to real estate. Deductions are available for gains related to certain qualified family-owned small business sales and qualified Washington charitable contributions. While some guidance has been issued on the DOR’s capital gains webpage, much interpretation is still needed.
Next steps for impacted individuals:
- Individual filers will need to set up a Secure Access Washington “SAW” account and register for a capital gains tax account with the DOR. Only one account is required if federal returns are filed as ‘married filing jointly’ or for state registered domestic partners electing joint filing.
- An extension is available for filing, but not for payment. The individual must have both a valid Federal tax extension and a separate Washington tax extension by April 18th. The return is then due on the extended federal due date.
- Payment of the tax is due April 18th and must be paid electronically via the SAW account. We encourage individuals to set up their accounts early if they anticipate owing this tax.
If the Court rules that the tax is unconstitutional, extension payments will be refundable by the DOR. However substantial penalties and interest will apply to amounts not paid by April 18 if the tax is ruled constitutional.
If you’re a Sweeney Conrad client and expect to have significant 2022 long term capital gains, please contact your client service team to discuss if this tax applies to your situation and for guidance setting up your account so we can assist with the extension and filing process.