UPDATED May 21, 2025

Gov. Bob Ferguson has signed legislation into law that will increase funding for Washington State's Education Legacy Trust Account (ELTA) by raising the capital gains and estate tax rates.

Capital Gains Tax Changes

The new legislation introduces a two-tier capital gains tax structure starting in 2025:

• Maintains current 7% rate on capital gains of $1 million or less, after the standard deduction indexed to inflation (currently $270,000 for all fliers, whether filing as an individual or jointly).
• Adds new 9.9% rate (2.9% additional) on capital gains exceeding $1 million, retroactive to January 1, 2025, and not indexed for inflation.

Individuals in Washington State pay capital gains tax on the sale or exchange of long-term capital assets such as stocks, bonds, business interests, or other investments and tangible assets. The tax does not apply to the sale or exchange of real estate or assets held in certain retirement savings vehicles, among other exemptions.

Estate Tax Changes

The legislation increases the estate tax exclusion amount from $2.193 million to $3 million for deaths occurring on or after July 1, 2025, and updates the reference to the Consumer Price Index to allow for annual inflation adjustments (using an index for the Seattle metropolitan area). The legislation also increases tax rates for estates of decedents dying on/after July 1, 2025 from 14-20% to 15-35%. These changes most substantially impact estates over $9 million.

Other changes included in the legislation:

• Increases qualifying family-owned business interests deduction from $2.5 million to $3 million.
• Extends the agricultural deduction to property passing to a “qualified nonfamilial heir” for decedents dying on or after July 1, 2025.

Lawmakers estimate that the new estate tax changes will generate $321.6 million for the next budget.

Please reach out to any of our Seattle Taxation & Wealth Planning team members to discuss how the tax law changes may impact you and your estate.

This information is intended to inform firm clients and friends about legal developments, including the decisions of lawmakers, courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the author(s) and not necessarily this law firm or its clients.