Now that the Washington State Senate Bill 5998 has been signed into law, our local real estate excise tax (REET) – the tax paid when you sell a property – will be getting a facelift in 2020. The flat rate of the past will make way for a new tiered system that gives owners a tax cut on the first $500,000 of their home value, keeps the current tax rate on the next $1 million of value, and then increases it sharply after $1.5 million.
Taxes will go down for the vast majority (~93%) of sellers in King County. However, homeowners who sell their homes for more than $1.56 million will be paying more – much more in the case of multi-million dollar home sales.
If you’d like to know how the changes might impact your bottom line when it comes time to sell, simply read on and check out our quick reference worksheet.
Details and background
The previous flat state REET tax of 1.28% (1.78% after the 0.5% local portion is added) will be replaced on January 1, 2020, by the following rates (the total REET after the King County local portion is shown in parenthesis):
1.1% (1.6%) – Portion of selling price less than or equal to $500,000
1.28% (1.78%) – Portion of selling price greater than $500,000 and equal to or less than $1.5 million
2.75% (3.25%) – Portion of selling price greater than $1.5 million and equal to or less than $3 million
3.0% (3.5%) – Portion of selling price greater than $3 million
These thresholds may be adjusted again in 2022 and every four years after that using a formula for calculating value trends.
The current state real estate excise tax rate has been the same since July 1, 1989, while the local portion of the rate has been managed by each jurisdiction individually. You can find the full details in this Real Estate Excise Tax historical rates chart provided by the Department of Revenue.
The state provides a summary of the history and use of the real estate excise tax in Washington State detailing changes over the years. Currently, the bulk of the estate tax (92.3%) goes to the General Fund. Beginning January 1, 2020, and ending June 30, 2023, revenue distributions must be as follows: 1.7% must be deposited in the Public Works Assistance Account; 1.4% must be deposited in the City-County Assistance Account; 79.4% must be deposited in the general fund; and the remaining amount must be deposited in the Education Legacy Trust Account. Beginning July 1, 2023, and thereafter, revenue distributions to the Public Works Assistance Account increases to 5.2%. You can find the full law and definitions in Chapter 458-61A WAC (Washington Administrative Code).
SO WHAT’S THE BOTTOM LINE?
If you sell for $1,561,258 or less in King County, you will pay the same or less (up $900 less) in REET after 1/1/20. This is great news for most property owners in King County and across the state. Because the rate states the same on the portion of the selling price greater than $500,000 and equal to or less than $1.5 million as it currently is, all the savings comes in the portion below $500,000. This begins to whittle away as you creep above $1.5 million and into the higher tax rate of 2.75% (3.25%).
If you sell for more than that amount, you’ll be paying more – possibly much more. You can see from the quick reference chart below that the seller of a $2.5 million property will pay an additional $13,800, while a $5 million sale will cost an extra $55,550, and a $10 million sale will cost $141,550 more.
Everyone will have a different take on the new tax rate, but if you have a high-end property and you’re considering selling in the next 6 to 12 months, then by listing in 2019, you may be able benefit from a tax savings by selling before 2020. On the other hand, selling in 2020 and beyond funds education and public works at greater levels than ever before, and that benefits everyone.
Excise Tax Quick Reference Worksheet