Washington has no personal income tax, and — importantly — it exempts direct sales of real estate from its 7% long-term capital gains excise tax. That means a property sale is taxed only at the federal level (23.8% on the gain). A 1031 exchange into a Delaware Statutory Trust defers that federal tax and moves Washington investors out of active landlording into passive institutional real estate.
23.8%Est. combined tax if you sell
0%Top state rate on gains
4.75–6.0% multifamilyIllustrative cap rates
How Washington taxes a property sale
State treatment. No state income tax. Washington's 7% capital gains excise tax applies to stocks and business interests but EXEMPTS direct sales of real estate.
Nonresident withholding. None at the state level on real estate.
Does Washington conform to Section 1031?
Yes — a qualifying exchange defers state tax alongside federal.
Washington has no income tax and its 7% capital gains excise tax (RCW 82.87) exempts real estate, so a property sale is taxed only federally; a 1031 exchange defers that federal tax. Note: the 7% tax can apply to gains on non-real-estate assets above the annual threshold.
Passive replacement property with a DST
Many Washington owners use a Delaware Statutory Trust as replacement property — institutional real estate, professionally managed, that qualifies for 1031 treatment and can absorb both the equity and the debt from the sale.
Does Washington's 7% capital gains tax apply when I sell real estate?
No. Washington's 7% long-term capital gains excise tax (RCW 82.87) specifically exempts direct sales of real estate. A property sale is taxed only at the federal level — up to 23.8% on the gain — which a 1031 exchange can defer.
Does Washington have a state income tax?
No. Washington has no personal income tax. The only state-level tax on investment gains is the 7% excise tax, and real estate is exempt from it.
Should I still do a 1031 exchange in Washington?
Yes — to defer the federal tax (up to 23.8%) and shift from active management to passive, institutional real estate while keeping your full equity invested.