In response to a projected budget deficit, Washington State enacted significant tax policy changes on May 20, 2025, which will impact the state’s capital gains and estate taxes. These reforms are intended to generate additional revenue for essential public services including education, infrastructure, and healthcare. For individuals and families with substantial assets, these changes may result in increased tax exposure. As a result, proactive planning is more important than ever to help preserve wealth and ensure financial strategies remain aligned with the evolving tax landscape.
Estate Tax Increase
Effective July 1, 2025, Washington’s estate tax exemption will rise from $2.193 million to $3 million, adjusted annually for inflation. While this higher exemption may offer relief to smaller estates, the legislation also raises estate tax rates across most brackets. As a result, many larger estates will face significantly higher tax liabilities.
Washington Estate Tax (Effective July 1, 2025)
Taxable Estate Value | Old Tax Rate | New Tax Rate |
$0 – $1,000,000 | 10% | 10% |
$1000,000 – $2,000,000 | 14% | 15% |
$2,000,001 – $3,000,000 | 15% | 17% |
$3,000,001 – $4,000,000 | 16% | 19% |
$4,000,001 – $6,000,000 | 18% | 23% |
$6,000,001 – $7,000,000 | 19% | 26% |
$7,000,001 – $9,000,000 | 19.50% | 30% |
Over $9,000,000 | 20% | 35% |
For estates exceeding $9 million, the top estate tax rate will rise from 20% to 35%, making it the highest marginal state estate tax rate in the country.
Capital Gains Tax Increase
Washington’s capital gains tax, originally enacted in 2021, is also undergoing changes in 2025. Effective retroactively to January 1, 2025, the state has added a new top bracket for high earners. Previously, long-term capital gains above the exemption amount (currently $270,000, adjusted for inflation) were taxed at 7%. Under the updated law, capital gains exceeding $1 million, after applying the exemption, will now be taxed at 9.9%.
Washington Capital Gains Tax (Effective retroactively to January 1, 2025)
Net Long-Term Capital Gains | Tax Rate |
$0-$270,000 | 0% |
$270,001 – $1,270,000 | 7% |
Over $1,270,000 | 9.9% |
Planning Considerations
For individuals or families with large taxable estates or highly appreciated assets, this is an opportune time to revisit your financial and estate planning strategy. You may want to consider:
- Spending a portion of your wealth on meaningful experiences during your lifetime
- Making gifts to family members or other beneficiaries using annual exclusions or trusts
- Donating to charitable organizations through structured giving strategies
These strategies can help reduce your capital gains tax liability and estate while aligning with your long-term personal and philanthropic goals. As always, coordination with your advisor, CPA, and estate planning attorney is essential.
Washington’s evolving tax landscape highlights the importance of proactive planning. With higher estate tax rates and expanded capital gains brackets, affluent families should assess their financial strategies to ensure they remain tax-efficient. Thoughtful planning today can help preserve more of your wealth for future generations and the causes that matter most to you.
Disclosure: This content is for informational purposes only and not investment advice.
