New WA state capital gains tax

[PageTwo]

Washington State (so far a no-income tax state) is trying to pass a new 7% tax on long term capital gains in excess of $250,000, effective 1/1/2022. The bill was challenged in court as unconstitutional. There isn't a final verdict yet, but the court has authorized the state to implement the tax and collect it. In case the tax is finally ruled invalid, the amounts collected will be reimbursed with interest.

See here: https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax

Earlier in the year, it wasn't clear yet that the tax would be in fact collected in spite of the court ruling still being pending... so with the markets declining I liquidated a bunch of company stock and other highly appreciated holdings thinking that if passed, the tax would be effective for 2023. Well, that backfired I will have to pay a fat tax bill to the state and can't but hope for an invalid ruling and getting that money back at some point.

Anyone else in WA state in a similar situation here? Misery loves company

 

[Chuckanut]

Just wait for the new Carbon tax which is now less than a week away. There may be more company loving misery than ever. We'll see. Estimates range from no increase to 50¢ a gallon for gasoline.

By the way the new tax on capital gains is an excise tax not an income tax. So they say.

 

[dmpi]

This bill has been in the works for 3+ years. I have my doubts that this will ever become law but I sold off the vast majority of my capital gains in 2020 & 2021. I still have some capital gains left but I think I can manage to keep them under 250K. Another thing that motivated me to sell out was if I waited to this year I would have got hit by high medicare premiums.

In your case if the state ends up paying you back, they're going pay you back plus interest. I'm curious what interest rate they'll use.

My opinion is this law is ridiculous in that it focuses only on large capital gains in after tax accounts and only for stocks and nothing else. They're going after WA state billionaires and everyone else caught in this is just collateral damage.

 

[MarieIG]

My condolences, PageTwo - from NY.

 

[Sunset]

Wow..... Just did a quick read and see they are encouraging divorce !!

"There are several deductions and exemptions available that may reduce the taxable amount of long-term gains, including an annual standard deduction of $250,000 per individual. In the case of spouses or domestic partners, the combined standard deduction is limited to $250,000 whether they file joint or separate returns. "

 

[PageTwo]

LOL... well, I'm single, so that strategy won't work for me!

 

[tulak]

Wow..... Just did a quick read and see they are encouraging divorce !!

Or they are discouraging marriage? [emoji6]

 

[Sunset]

Or they are discouraging marriage? [emoji6]

Since young folks getting married often don't have much saved, this is actually ageism aimed at older folks about to have a 2nd marriage.
Now they will have to stay single or pay extra.

 

[Koolau]

Washington State (so far a no-income tax state) is trying to pass a new 7% tax on long term capital gains in excess of $250,000, effective 1/1/2022. The bill was challenged in court as unconstitutional. There isn't a final verdict yet, but the court has authorized the state to implement the tax and collect it. In case the tax is finally ruled invalid, the amounts collected will be reimbursed with interest.

See here: https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax

Earlier in the year, it wasn't clear yet that the tax would be in fact collected in spite of the court ruling still being pending... so with the markets declining I liquidated a bunch of company stock and other highly appreciated holdings thinking that if passed, the tax would be effective for 2023. Well, that backfired I will have to pay a fat tax bill to the state and can't but hope for an invalid ruling and getting that money back at some point.

Anyone else in WA state in a similar situation here? Misery loves company

I guess I would wonder how many folks (even here) would typically exceed $250K in Cap Gains. I'm sure a few, but certainly not many. I just scanned the site but is the gain based on unrealized cap gains? That just might occasionally be an issue (though not for '22 I wouldn't think.)

 

[MarieIG]

I guess I would wonder how many folks (even here) would typically exceed $250K in Cap Gains. I'm sure a few, but certainly not many. I just scanned the site but is the gain based on unrealized cap gains? That just might occasionally be an issue (though not for '22 I wouldn't think.)

It mentioned the sale or exchanged of assets, so would that not equate to realized?

 

[Chuckanut]

I guess I would wonder how many folks (even here) would typically exceed $250K in Cap Gains. I'm sure a few, but certainly not many. I just scanned the site but is the gain based on unrealized cap gains? That just might occasionally be an issue (though not for '22 I wouldn't think.)

They could set the limit at $1,000,000,000 of gain. That is not what is important.

IMO, what is important is to get a ruling from the state Supreme Court that allows state and local governments to get around the constitutional provision forbidding an income tax in the state of Washington. That's one reason they call the tax an 'excise tax' and not an 'income tax'.

 

[nwsteve]

They could set the limit at $1,000,000,000 of gain. That is not what is important.

IMO, what is important is to get a ruling from the state Supreme Court that allows state and local governments to get around the constitutional provision forbidding an income tax in the state of Washington. That's one reason they call the tax an 'excise tax' and not an 'income tax'.

+1000--it is all word play by the spenders in our state

 

[Koolau]

It mentioned the sale or exchanged of assets, so would that not equate to realized?

No expert on that, but $250K. Really? That's quite a lot of sales to realize $250K of cap gains.

 

[marko]

No expert on that, but $250K. Really? That's quite a lot of sales to realize $250K of cap gains.

Wouldn't the sale of a house count?

Our state just passed a new 4% tax on "income" over a million, but that includes any gains from a sale of your home or sale of your farm or business. We have many older folks who bought their house 45 years ago for $35k and now it's worth $1.5MM.

I wonder if the WA plan has the same provisions.

 

[Happyras]

Wouldn't the sale of a house count?

Our state just passed a new 4% tax on "income" over a million, but that includes any gains from a sale of your home or sale of your farm or business. We have many older folks who bought their house 45 years ago for $35k and now it's worth $1.5MM.

I wonder if the WA plan has the same provisions.

As I understand this, unless changed, the sale of your home, small business/property is exempt. I was sweating this and spoke with our CPA, as our income over the last 4 years (and future few) is primarily capital gains from selling our business spread on an installment sale. We still own the business property, and hope the sale of that is also exempt, else we are stuck with a triple net for life.

This whole crooked work around of the WA law is not fair to most. Seattle tried to do another excise tax on income an it failed, targeting high incomes. Once they get a foothold calling it an excise tax, we are then doomed to get a full blown income based tax.

Its bad enough we have a death tax with a very low exemption, making lawyers a lot money setting up QTIP's trusts to avoid it.

 

[marko]

, making lawyers a lot money setting up QTIP's trusts to avoid it.

And there it is! All these taxes always sound good, but those mostly affected always find a work around. I've often posted here that the rich just have too many options to be hit too hard.

 

[Koolau]

Wouldn't the sale of a house count?

Our state just passed a new 4% tax on "income" over a million, but that includes any gains from a sale of your home or sale of your farm or business. We have many older folks who bought their house 45 years ago for $35k and now it's worth $1.5MM.

I wonder if the WA plan has the same provisions.

Yeah, I suppose you could hit it with sale of an appreciated house. But with bonds/securities only, that would be quite a nut to sell to gain $250K. Just sayin'

 

[Koolau]

As I understand this, unless changed, the sale of your home, small business/property is exempt. I was sweating this and spoke with our CPA, as our income over the last 4 years (and future few) is primarily capital gains from selling our business spread on an installment sale. We still own the business property, and hope the sale of that is also exempt, else we are stuck with a triple net for life.

This whole crooked work around of the WA law is not fair to most. Seattle tried to do another excise tax on income an it failed, targeting high incomes. Once they get a foothold calling it an excise tax, we are then doomed to get a full blown income based tax.

Its bad enough we have a death tax with a very low exemption, making lawyers a lot money setting up QTIP's trusts to avoid it.

I guess states have to make money somehow. I recall my old state's first sales tax. The gubner came on TV and said it would never go up because they'd done their homework and the piddly little amount of state sales tax wouldn't really hurt anyone. Well, FF a few (well, 50 years) and my old state has one of the higher state sales taxes in the nation (PLUS income tax plus local-option sales tax.) Never trust a gubner or any state taxing authority. They only understand one word. "MORE."

Heh, heh, now let me ask if anyone is actually surprised by any of this?

Of course, YMMV.

 

[marko]

I guess states have to make money somehow. I recall my old state's first sales tax. The gubner came on TV and said it would never go up because they'd done their homework and the piddly little amount of state sales tax wouldn't really hurt anyone. Well, FF a few (well, 50 years) and my old state has one of the higher state sales taxes in the nation (PLUS income tax plus local-option sales tax.) Never trust a gubner or any state taxing authority. They only understand one word. "MORE."

Heh, heh, now let me ask if anyone is actually surprised by any of this?

Of course, YMMV.

The old "for the price of a cup of coffee" routine.

When they built the Mass Turnpike, they "said" that they would only collect tolls until the project was paid for. 65 years later, well...

 

[Spock]

I'll have a 5BR/3BA 3car garage for sale in sunny AZ for anybody in rainy WA that wants to relocate to a friendlier tax climate.
(ok... it's not income tax free, but the lower property tax rate makes up for it compared to at least one of the income tax free states).

 

[Chuckanut]

My understanding is that the new capital gains tax will not include real estate and inherited money. So I am told.

 

[oiseux]

Real estate and certain retirement accounts are exempted; gains from sales of a qualified family businesses appear to be exempted.

My view as an ex-resident (who still has property there)
I believe this tax will take in less than they expect, because people will be able to optimize around it. The truly rich will set up entities/trusts in another state while others will plan their CG around the rather high limit. The only people getting stung will be those where the cost of the workaround is higher than the tax paid. However, the tax lawyers and CPAs can rejoice.

Thought this was interesting, presenting the various amicus briefs filed in support and against the law (including links to the briefs)
https://www.washingtonpolicy.org/pu...ary-of-capital-gains-income-tax-amicus-briefs

 

[Koolau]

The old "for the price of a cup of coffee" routine.

When they built the Mass Turnpike, they "said" that they would only collect tolls until the project was paid for. 65 years later, well...

Yeah, Starbucks has kinda put the Kibosh on THAT argument.

 

[Chuckanut]

Real estate and certain retirement accounts are exempted; gains from sales of a qualified family businesses appear to be exempted.

My view as an ex-resident (who still has property there)
I believe this tax will take in less than they expect, because people will be able to optimize around it. The truly rich will set up entities/trusts in another state while others will plan their CG around the rather high limit. The only people getting stung will be those where the cost of the workaround is higher than the tax paid. However, the tax lawyers and CPAs can rejoice.

Thought this was interesting, presenting the various amicus briefs filed in support and against the law (including links to the briefs)
https://www.washingtonpolicy.org/pu...ary-of-capital-gains-income-tax-amicus-briefs

The real winners will be those who want a general income tax on the earnings of most people in the state - with no significant reduction in any other tax, IMO). The capital-gains 'excise' tax is the camel getting his nose into the tent.

 

[mpeirce]

No expert on that, but $250K. Really? That's quite a lot of sales to realize $250K of cap gains.

It depends. I still have a decent chunk of $10 AAPL that I’m still slowly selling.

In WA’s case it would probably be more along the lines of MSFT and AMZN that people have held for a while.