Washington State Real Estate Excise Tax - REET

Washington State Real Estate Excise Tax or REET is a tax on the sale and transfer of real estate.  The REET is an excise typically paid by the seller of the property, although the buyer is liable for the tax if it is not paid. The tax amount is normally included in seller expenses and is deducted from the proceeds of the sale and is due at the time of sale. The tax is based on the sales price of the real estate. However, for real estate short sales, the REET is not applicable to the seller or buyer (see note below).

Currently, the REET tax rate percentage is 1.78% in Issaquah. In Washington state, the tax ranges from a low of 1.28% in the towns of Elmer City, Nespelem, Metaline, Krupp and Starbuck to a high of 2.78% in the cities of Friday Harbor and Unincorp in San Juan county. Most tax rates range from 1.53% to 1.78%. A complete listing of REET tax rates can be found on the Washington State Department of Revenue website. Proceeds from the tax are divided between the state, county and local taxing entities with 1.28% going to the state of Washington with the remaining proceeds (if any) being distributed to other taxing authorities. Of the 1.28% state portion of the tax, about 92% goes into the states general fund while the remainder is returned to city and county taxing authorities.

washington state reveune sources Washington State Real Estate Excise Tax   REETAccording to the Federation of Tax Administrators, thirty-five states plus Washington D.C. imposes a real estate transfer. Tax rates range from a low of 0.01% in Colorado to a high of 2.78% in certain locations in Washington state and 2.2% for most real estate sales in Washington D.C.  In about 2/3 of the states imposing the real estate transfer tax, the rate is below 0.5%. On average, the Washington state REET is the second highest of all states who impose a tax on the sale and transfer of real estate.

Tax revenue from the REET for the state of Washington is estimated to total almost $1 billion dollars for the 2011-2013 budget period - which will represent almost 3% of all estimated Washington state tax receipts (see graph). This is down from almost $1.1 billion dollars collected in the 2009-2011 budget period when the REET represented 3.5% of all Washington state tax receipts.

It is worth noting that as a part of the Health Care Reform act, beginning in January of 2013, a new 3.8% federal tax on certain home sales will take effect. To be eligible for this new real estate tax, you must be a married couple making more than $250,000 ($200,000 if you are single.)  For married couples, the tax rate is applied on the total gain after a $500,000 exclusion (the exclusion for singles is $250,000.) For example, a married couple make $275,000 in wages and other income, therefore they are eligible for the potential federal home home sale tax. They bought a home many years ago for $250,000 that they now sell for $900,000. In this case, the new federal tax would apply as it is over the $500,000 exclusion ($900,000 - $250,000 = $650,000.) The tax on the sale would be levied on the amount over the threshold (in this case $500,000) and would amount to $5,700 ($150,000 times 3.8%.) However, for those who earn above those income thresholds ($250,000/$200,000) and who have a capital gain on a home that is a second home or one that does not qualify for principal residence (i.e., a rental property), the full capital gain (no exclusions) would be subject to the new 3.8 percent tax rate.

Using the example above, assuming the home is in Issaquah, the new federal tax would be $5,700 while the Washington state REET would be $16,020 ($900,000 times 1.78%) for a total tax of $21,720.

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NOTE: This information is not meant to give legal and/or tax advice. Buyers and/or sellers of Washington state real estate are advised to seek legal or tax advice should they have questions or concerns.

About

Danny Evatt, REALTOR® is a Real Estate Agent with Coldwell Banker Danforth, serving the communities of Issaquah, Sammamish, Snoqualmie, North Bend & Fall City.