Understanding Washington State Excise Tax

If you’re buying or selling property in Washington State, you’ve likely heard of Real Estate Excise Tax (REET). This tax is an important—but often misunderstood—part of real estate transactions.

In this guide, we’ll break down what excise tax is, when and why you have to pay it, and strategies to minimize it legally.

What Is Excise Tax in Washington State?

Excise tax is a state-imposed tax on the sale or transfer of real estate. In Washington, the Real Estate Excise Tax (REET) is calculated based on the sale price of the property. It is paid by the seller at closing.

How Much Is Real Estate Excise Tax in Washington?

Washington uses a tiered system to calculate REET:

🔹 Example Calculation:

• If you sell a home for $700,000, the tax is:
  • 1.1% on the first $525,000 = $5,775
  • 1.28% on the remaining $175,000 = $2,240
  • Total REET = $8,015

📍 Local REET:
In addition to the state REET, most cities and counties charge an additional excise tax, typically around 0.25% to 0.50%.

Who Pays Excise Tax?

💰 Sellers are responsible for paying REET at the time of closing. The excise tax must be paid before the deed is recorded with the county.

However, in some cases, buyers and sellers can negotiate who covers this tax in the purchase agreement.

When Do You Have to Pay Excise Tax?

Excise tax is due whenever real estate is sold or transferred. This includes:

✔ Selling a home
✔ Transferring property to a new owner (except in some exempt cases)
✔ Selling commercial property

🚨 Failure to pay REET on time can result in penalties and interest charges.

Ways to Reduce or Avoid Excise Tax in Washington State

While excise tax is mandatory in most real estate transactions, there are legal exemptions and strategies that can reduce or eliminate this tax.

1. Gift or Inheritance Transfers (Exempt)

🏡 Gifting a home to a family member does not trigger REET if there is no compensation exchanged. Similarly, inheriting property is excise tax-exempt.

💡 Tip: If planning to transfer property within the family, consider a gift deed instead of a sale.

2. Divorce or Legal Separation Transfers (Exempt)

🏛️ Property transfers due to divorce or legal separation are exempt from excise tax.

💡 Tip: If you or your spouse are dividing assets, ensure the property transfer is part of the legal divorce decree.

3. Business Transfers (Potentially Exempt)

If a property transfer is part of a corporate reorganization or ownership restructuring, it may qualify for an exemption.

Example:
✅ If you transfer property between two LLCs that you own, REET may not apply.

💡 Tip: Consult a real estate attorney or tax professional before restructuring property ownership.

4. Selling Below Market Value (Partial Tax Savings)

Selling a property for less than fair market value can reduce the excise tax burden. However, if any money is exchanged, some excise tax may still apply.

💡 Tip: If selling to a family member or friend, consider a lower sales price to minimize REET.

5. Using a 1031 Exchange (Tax-Deferred, Not Exempt)

A 1031 exchange allows real estate investors to defer excise tax by reinvesting the proceeds from a sale into another property.

Rules for a 1031 Exchange:
✔ The new property must be of equal or greater value
✔ The transaction must be structured correctly
✔ The new purchase must occur within 180 days

💡 Tip: Work with a qualified 1031 exchange intermediary to ensure compliance.

6. Selling a Property with a Lease-to-Own Agreement

In some cases, structuring a sale as a lease-to-own agreement instead of a direct sale can delay or reduce excise tax obligations.

💡 Tip: This strategy is complex—consult a real estate attorney to explore this option.

Final Thoughts: Plan for Excise Tax Before Selling

Excise tax is an unavoidable cost for most property sales in Washington State. However, understanding the tax rates, exemptions, and planning strategies can help you reduce or defer the tax burden legally.

✅ Before selling property, consult a:
✔ Real estate agent to understand your net proceeds
✔ Tax professional to explore possible exemptions
✔ Real estate attorney if considering creative tax strategies

💡 Are you thinking about selling a home in Washington? Contact me for expert guidance on maximizing your home’s value while minimizing unnecessary costs! 📩🏡