A 1031 exchange in Washington lets you sell investment real estate and reinvest in like-kind property while deferring the tax on the gain. The federal rules apply the same way everywhere. Washington has no state income tax, and there is a point of confusion worth clearing up first: the state's capital gains tax, introduced recently, does not apply to real estate. What Washington does levy on a sale is a transfer tax, the Real Estate Excise Tax, which works differently. We act as your qualified intermediary, holding the proceeds and handling the documentation so the exchange holds from sale to closing.
Table of contents
- Does Washington's capital gains tax apply to real estate?
- The Real Estate Excise Tax (REET)
- Washington 1031 exchange rules and timeline
- 1031 exchanges across Washington markets
- Common Washington 1031 exchange mistakes
- Start your Washington 1031 exchange
- Frequently asked questions
Does Washington's capital gains tax apply to real estate?
No, and this is the question Washington investors most often get wrong. Washington enacted a capital gains excise tax of 7% on long-term gains above an annual threshold of roughly $278,000, rising to 9.9% on gains above $1 million, and it was upheld by the state Supreme Court. But real estate is specifically excluded from that tax. Gains from the sale or exchange of real property are exempt, so a real estate sale in Washington does not trigger the state capital gains tax at all. The tax reaches things like stocks and business assets, not your investment property.
The practical result: Washington imposes no state income or capital gains tax on a real estate gain. The only tax a Washington 1031 defers is federal:
- Long-term capital gains at 0%, 15%, or 20%, with the 20% rate applying above $545,500 of taxable income for single filers and $613,700 for married couples filing jointly in 2026.
- The 3.8% Net Investment Income Tax above $200,000 of modified adjusted gross income for single filers, $250,000 for married couples.
- Depreciation recapture, taxed as unrecaptured Section 1250 gain at up to 25%.
A properly structured Washington exchange defers all of it. The full federal framework is in our main 1031 exchange guide.
The Real Estate Excise Tax (REET)
What Washington does charge on a property sale is the Real Estate Excise Tax, a transfer tax on the conveyance itself. The state REET is graduated by price, from 1.1% on lower-value sales up to 3% on the highest, plus a local portion that varies by jurisdiction. REET is a tax on the transfer, not on your income or gain, so a 1031 exchange does not defer it the way it defers federal capital gains tax. Budget REET as a transaction cost on the sale, separate from the tax the exchange is deferring.
Washington 1031 exchange rules and timeline
The federal deadlines govern, and they are strict:
- 45-day identification. Identify replacement property in writing within 45 days of the sale.
- 180-day closing. Close within 180 days of the sale, or by your return due date including extensions, whichever is earlier.
- No constructive receipt. Proceeds go to your qualified intermediary, never to you.
- Equal or greater value and debt. Reinvest all net proceeds and match or exceed the relinquished value and debt, or the shortfall is taxable boot.
- Same taxpayer. The entity that sold must be the entity that buys.
1031 exchanges across Washington markets
Seattle and the wider Puget Sound carry most of Washington's exchange volume, in multifamily, commercial, industrial, and life-sciences property, driven by the region's technology base and high values, with Bellevue and the Eastside especially strong. Tacoma offers lower entry prices to the south, and Spokane in eastern Washington is a more affordable, higher-yield market. Vancouver, in the southwest across the river from Portland, is a distinctive case: because Washington has no income tax and Oregon does, the Portland metro's Washington side draws residents and investors seeking to avoid Oregon's income tax, which supports steady demand. Washington property tax is moderate, with the total levy generally limited to 1% annual growth, and varies by county, so confirm the rate for any replacement deal.
Common Washington 1031 exchange mistakes
- Assuming the state capital gains tax applies to a property sale. It does not; real estate is excluded.
- Forgetting REET, the transfer tax that does apply to the sale and is not deferred by a 1031.
- Taking receipt of the proceeds, even briefly, which disqualifies the exchange.
- Missing the 45-day identification window, or trading down into taxable boot.
Start your Washington 1031 exchange
Set up your exchange before your relinquished property closes, so the proceeds never reach your hands and the 45-day and 180-day clocks start clean. Contact our team to begin, or to talk through a specific deal.
Frequently asked questions
Does Washington's capital gains tax apply to real estate?
No. Washington's capital gains excise tax specifically excludes real estate, so a property sale does not trigger it. The tax applies to assets like stocks and business interests.
Does Washington tax a real estate gain at all?
Not as income. Washington has no state income tax and real estate is exempt from the capital gains excise tax, so the only tax a Washington 1031 defers is federal. The Real Estate Excise Tax is a separate transfer tax on the sale.
What is REET?
The Real Estate Excise Tax is Washington's transfer tax on a property sale, graduated from 1.1% up to 3% by price, plus a local portion. It is not an income tax, so a 1031 does not defer it.
Do I need a qualified intermediary for a Washington 1031 exchange?
Yes. The intermediary must hold the proceeds and facilitate the exchange. Engage one before the relinquished property closes.
This page is general information, not tax or legal advice. We act as a qualified intermediary and do not provide tax or legal advice. State and federal rules and thresholds change; confirm current figures with your tax advisor.
