The State of Washington imposes a real estate excise tax (REET) on the sale of real property. For many years, the REET was assessed at a flat rate of 1.28% at the state level, and local governments could also tax property sales at a varying rate on top of the flat state rate. Beginning January 1, 2020, this will change.
The Washington State Legislature has passed, and the Governor has signed, Senate Bill 5998. This new law replaces the flat state rate REET with a graduated REET, becoming effective January 1, 2020. This means that if you are planning on selling your real estate on or after January 1, 2020, the amount of REET due on the sale will depend on the sales price of the real estate:
|
Portion of Sales Price |
Rate of REET |
|
Less than $500,000 |
1.10% |
|
Greater than $500,000 but less than or equal to $1,500,000 |
1.28% |
|
Greater than $1,500,000 but less than or equal to $3,000,000 |
2.75% |
|
Greater than $3,000,000 |
3.00% |
The sale of timberland or agricultural land will continue to be taxed at a flat rate of 1.28%, and the new law does not include changes to the local varying REET rates. This means that for sales of real estate (except for timberland or agricultural land) with a sales price of $1,500,000 or less (most residential property sales), the effect of the new law will be a reduction in the REET due. However, for many commercial real estate transactions that far exceed a sales price of $1,500,000, the law could result in a substantial increase in the REET due. For example, if a property owner sells their commercial building for $8,000,000 on December 31, 2019, the state REET due on the transaction would be $102,400.00 (plus the applicable local REET). If the property owner sells the same commercial building for the same price on January 1, 2020, the state REET due on the transaction will more than double, totaling $209,550.00 (plus the applicable local REET). The long-term effects of this tax law change remain to be seen, but many believe this could result in a slight depression of property values, particularly commercial real estate. Below is a link to the full bill, as passed by the Legislature:
http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bills/Senate%20Passed%20Legislature/5998-S.PL.pdf
If you have questions about how the new tax law may affect your planned sale or any other aspects of SB 5998 that may affect you, please contact Stephanie Gero or one of the other attorneys in MPBA’s Real Estate Department at 206-682-7090.