Significant Changes Coming to Washington's Real Estate Excise Tax

On May 21st, Governor Jay Inslee signed legislation designed to overhaul Washington’s real estate excise tax (REET) by imposing progressively higher rates on sales of real estate. The new law, ESSB 5998, replaces the state’s flat 1.28% tax rate with a graduated rate structure that begins at 1.10% and climbs to 3.00% for sales proceeds over $3 million.

The new rate brackets will apply as follows:

Significant Changes Coming to Washington’s Real Estate Excise Tax - The Doty Group

The legislation does not change city and county REET rates, which typically add an additional 0.25% to 0.50% on top of the state rate, depending on the locality.

ESSB 5998 leaves in place an existing rule that taxes certain ownership changes in companies that hold real estate, but expands the rule to cover changes that occur over a three-year testing period, up from 12 months. The law also adds a broad anti-abuse rule aimed at preventing sellers from breaking up a larger sale into several smaller ones in order to claim the lower rates. 

Importantly, these new tax rates do not take effect until January 1st, 2020, which creates a window of opportunity for sellers to complete larger transactions before the end of the year and take advantage of the existing rates.