Washington State has officially enacted new estate tax and capital gains tax rules, effective July 1, 2025. These changes impact many Washington families—not just the ultra-wealthy. At Eastside Estate Planning, we want our clients to understand how these updates affect real-world estate planning and tax strategies here in Washington. Enlisting the help of an experienced Bellevue, WA tax planning lawyer can help you to understand how these new rules will affect you and your estate.
Updated Capital Gains Tax Rates In Washington
Washington previously applied a 7% tax on long-term capital gains above a $270,000 deduction. Under the updated law:
New Capital Gains Rates (Starting With Gains Earned In 2025, Reported In 2026):
Taxable Washington Capital Gains New Rate
Up To $1 Million 7%
Over $1 Million 9.9% (7% + 2.9% Surcharge)
The existing exemptions still apply, including real estate sales, retirement account withdrawals, and certain family business transactions.
Important: Washington does not allow carryback of capital losses. Only federal loss carryforwards apply when calculating state capital gains.
Big Changes To Washington Estate Tax — Effective July 1, 2025
Washington has its own estate tax system (separate from the IRS), and now the exemption has finally increased for the first time in years.
New Washington Estate Tax Rules
Estate Tax Feature Before July 1, 2025 After July 1, 2025
Estate Tax Exemption $2.193 Million $3 Million
Portability Between Spouses No Portability Still No Portability
Annual Inflation Adjustment Paused Resumes In 2026
(Seattle CPI Index)
Top Estate Tax Rate 20% Up To 35%
(For Very Large
Estates)
What This Means for Washington Families
- More moderate estates will see lower tax liability.
- Large estates ($9M+) will see higher tax rates.
- Lifetime gifts are still NOT counted toward Washington estate tax exemption.
- Washington still does not allow “portability” between spouses — meaning careful trust planning is necessary to preserve both spouses’ $3M exemptions.
Example: Estate Of $5 Million
Before 7/1/25 After 7/1/25
Exempt: $2.193M Exempt: $3M
Tax Owed: $361,050 Tax Owed: $250,000
Small to mid-sized estates benefit — but large estates will see higher taxes under the new bracket system.
Expanded Deductions For Family-Owned Businesses And Farms
Starting July 1, 2025:
- Family Business Exemption increases from $2.5M to $3M
- Indexed annually starting 2026
- New provision allows qualified long-term farm workers (not just family members) to qualify as heirs for farm estate tax deductions
- Estate tax deductions can be recaptured if the farm or business is sold or stops operating within three years
What Families Should Do Now
These changes create new planning opportunities — and new risks — depending on your estate size and structure.
- For estates between $3M and $6M — there is a new opportunity to reduce tax exposure, but spouse trust planning is still necessary due to lack of portability.
- For estates over $9M — proactive trust and gifting strategies may help lessen the impact of bracket increases.
- Family business and farm owners — should revisit their planning to make certain of eligibility for the new, higher deduction and avoid recapture penalties.
Washington-Specific Estate Tax Planning
At Eastside Estate Planning, we help Washington residents preserve both spouse exemptions, use trust-based strategies to reduce or eliminate unnecessary estate tax, and make certain that family businesses and farms are protected under the new law. We offer free phone consultations and flat-fee packages with no hidden costs or fees. If your estate plan was set up under the old $2.193M exemption, now is the right time to review it. Give us a call as soon as you are ready.
