Update January 1, 2020 -- These new tax laws are now in effect.
Washington State is in the process of changing many laws that will affect real estate transactions. One of the recent changes that will affect sellers in the near future is the WA state excise tax otherwise known as REET.
Before, the tax rate is 1.28 % on real property. Real Property is land and any attached buildings. The new plan is a graduated excise tax based on the full sales price. The lower-priced transactions will receive some tax relief as well as agricultural land. Those homes that are considered in the luxury tax bracket will owe more in excise tax, sometimes more than doubling the current amount.
Graduated REET structure
Sale price thresholds
$500,000 or less
$500,000.01 - $1,500,000
$1,500,000.01 - $3,000,000
$3,000,000.01 or more
The tax is graduated and levied as a property increases in value. For instance the tax on a $1.5M property, the first 500K is taxed at 1.10% and the remaining 1M is taxed at 1.28%. For more information go here to learn about different scenarios and new upcoming changes.
But wait, there's more. Counties may add up to 1% of their own taxes to the state-mandated amount. Currently, only San Juan county takes advantage of this option, but don't be surprised if other counties follow suit. There have been rumors for years that the City of Seattle has been looking at adding an additional real estate excise tax to the state percentage.
What can you do as a seller? Not much, but if you are at the cusp of the graduated amount, you might want to price your home accordingly, it could make sense for your final closing statement to take a slightly less sales price to pay less for the excise tax. You should also be aware if your county will add it's own tax to the state mandated amount. In a minority of home or land sales pricing in certain categories can be a consideration.
How funds are used
1.3% of the state tax collected by counties is retained to cover administration costs. Of the net proceeds to the state, 2% goes into the public works assistance account, 4.1% to the education legacy account with remaining amounts going the general fund. *From WA state DOR website
We are likely to hear more about this topic for the next couple of years. Finally, here's the usual disclaimer: I am not an attorney or CPA. Please consult your tax advisors for the best opinion for your individual options.
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