The 2025 Washington State Budget included significant changes to the Washington long term capital gains tax and the Washington estate tax. Here are the three key changes for Washington taxpayers.
New Capital Gains Tax Bracket of 9.9%
Taxable Washington capital gains—generally the federal net long-term capital gain with several adjustments—excludes the first $250,000 of gain each year, indexed for inflation. Washington capital gains in excess of the $250,000 exclusion has been taxable at a flat rate of 7.0%. As of January 1, 2025, a new tax rate of 9.9% applies to capital gains in excess of $1,000,000 over and above the $250,000 exclusion. (The inflation-adjusted exclusion for each year is not determined until after October 1; the inflation-adjusted exclusion in 2024 was $270,000.) The $1,000,000 bracket to which the 7.0% rate still applies, unlike the initial $250,000 exclusion, is not indexed for inflation.
This change constitutes a significant tax increase on large Washington long-term capital gains, especially applicable to taxpayers who sell a business or otherwise face a large lump sum capital gains recognition event.
Estate Tax Exclusion Increased to $3M
The Washington estate tax-free exclusion amount has increased from $2,193,000 to $3,000,000. The new $3,000,000 estate exclusion applies to estates of decedents dying on or after July 1, 2025.
Beginning in 2014, the Washington estate tax-free exclusion amount was indexed for inflation, then at $2,012,000. In 2018, the Washington Department of Revenue interpreted a change in the Bureau of Labor Statistic’s measuring index to freeze the exclusion amount at $2,193,000, where it remained until the reset to $3,000,000 on July 1, 2025, and indexed for inflation for 2026 and beyond.
Estate Tax Rate Increases to Top Rate of 35%
The Washington estate tax rates have increased dramatically, with the highest marginal rate on the amount of a Washington taxable estate (after the tax-free deduction) in excess of $9,000,000 increasing from 20% to 35%.
The Washington state estate tax applies increasing tax rates to higher brackets of Washington taxable estate value. The rate on the first $1,000,000 over and above the exclusion remains at 10%, but the rate on each subsequent bracket of taxable estate value would increase. The new tax rates and brackets are shown below:
| From | Up to | New Marginal Rate |
| $0 | $1,000,000 | 10% |
| $1,000,000 | $2,000,000 | 15% |
| $2,000,000 | $3,000,000 | 17% |
| $3,000,000 | $4,000,000 | 19% |
| $4,000,000 | $6,000,000 | 23% |
| $6,000,000 | $7,000,000 | 26% |
| $7,000,000 | $9,000,000 | 30% |
| $9,000,000 | Greater than $9,000,000 | 35% |
For larger estates, the tax liability would increase dramatically under the new law. A taxable estate of $16,000,000, for example, would face a liability increase from about $2,450,000 under prior law to about $3,330,000 under the new law.
Federal estate tax, which currently applies a 40% flat rate to taxable estates over $13,990,000, allows a deduction for state estate taxes paid. After factoring in this deduction, Washington residents with estates subject to both federal estate tax and the highest marginal rate under the Washington estate tax face a combined marginal rate of 61%, up from the current rate of 52%. A U.S. resident of a state without a state estate tax, meanwhile, faces only the federal estate tax rate of 40%. For more information: