Effective January 1, 2020

The new rates for Washington’s state real estate excise tax (REET) will be as follows:

• 1.60% of the selling price less than or equal to $500,000.00
• 1.78% of the selling price from $500,000.01 to $1,500,000.00
• 3.25% of the selling price from $1,500,000.01 to $3,000,000.00
• 3.50% of the selling price over $3,000,000.00

The rates will be applied cumulatively, like federal income tax. For example, on a $2,000,000 sale, the total REET would be $32,050 ($5,500 on the first $500,000 plus $12,800 on the next $1,000,000 plus $13,750 on the next $500,000). Any local REET imposed by cities or counties will also apply.

MULTI-PARCEL TRANSACTIONS:

It is unknown at present if the sales price will be applied on a pro-rated parcel-by-parcel basis or on the aggregate sales price.

AGRICULTURAL & TIMBER PROPERTIES:

The rate changes above do not apply to agricultural and timber properties. The current state rate of 1.28% remains unchanged.

CONTROLLING INTEREST CHANGES:

Current law imposes excise tax on the acquisition or transfer of a controlling interest (50% or more) in an entity that owned real property within a 12-month period. The new legislation increases the time when a transfer of a controlling interest is taxable to a period of 36 months. Sellers of minority interests could find themselves subject to the new legislation based on what other parties do within 36 months of their sale. The new legislation requires the Washington Secretary of State to disclose transfers based upon annual reports filed with the that office. Failure to report such transfers to the Washington Secretary of State could add a 50% penalty in addition to the amount of real estate excise due.

The new legislation allows the Washington Department of Revenue to review the entire transaction to determine whether the correct amount of real estate excise tax is due.

It is expected that the Washington Department of Revenue will be issuing guidance to the public on the implementation of the new REET rates.