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What Are the Capital Gains Tax on Real Estate in Washington State?

Capital gains tax is a tax on the profit that is made when a property is sold for more than it was purchased for. When it comes to real estate, capital gains tax can be a significant consideration for individuals who are looking to sell a property in Washington state. In this blog post, we will explore the capital gains tax laws in Washington state, as well as ways to minimize or avoid paying capital gains tax on a real estate sale.

In Washington state, capital gains tax on real estate is calculated by subtracting the cost basis of the property (usually the purchase price plus any improvements made to the property) from the sale price. The result is then multiplied by the individual's marginal tax rate, which can be found on the federal income tax tables. This means that if you make a profit when you sell a property, that profit will be subject to capital gains tax.

However, it's important to note that there are certain exceptions and exclusions to the capital gains tax on real estate in Washington state. For example, if the property being sold is considered a primary residence, the first $250,000 of gain for single individuals and the first $500,000 of gain for married individuals is excluded from capital gains tax. This means that if the gain on the sale of a primary residence is less than $250,000 for single individuals or $500,000 for married individuals, no capital gains tax will be due. Additionally, if the seller is over 55, they may qualify for the Senior Citizens Exemption, which allows individuals to exclude the first $125,000 of gain from the sale of their primary residence.

Another way to minimize capital gains tax on real estate in Washington state is to invest the proceeds from the sale of a property in another property through a 1031 exchange. A 1031 exchange, also known as a like-kind exchange, allows for the deferral of capital gains tax on the sale of a property as long as the proceeds are invested in another "like-kind" property. This means that if you sell a property, you can use the proceeds to purchase another property of equal or greater value, and defer paying capital gains tax on the sale until the new property is sold.

It's also worth noting that owning the property for a long time can be beneficial in terms of capital gains tax, since it will lower the capital gain because of the exclusion of the first $250k or $500k of gain, as mentioned above. Additionally, you can lower your capital gain by deducting depreciation and expenses that is related to the rental property over the time you owned it. Consultation with a tax professional can help you to understand how to best take advantage of these deductions.

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What Happens to Real Estate in Probate in Washington State?

When a person dies, their assets must go through the probate process before they can be distributed to their heirs or beneficiaries. This process can be complicated and time-consuming, particularly when it comes to real estate. In Washington State, the probate process for real estate can vary depending on the specific circumstances of the case.

Generally, when a person dies and leaves behind real estate, the property will pass through probate court. The court will appoint an executor to oversee the administration of the estate, and that person will be responsible for managing the property during the probate process.

The first step in the probate process for real estate is to open the estate in probate court. In Washington state this is done by filing a petition for probate with the appropriate court, the court will then appoint an executor and issue letters of testamentary which allow the executor to handle the decedent's assets and pay debts.

Once the estate has been opened, the executor will be responsible for taking an inventory of the decedent's assets, including the real estate property. They will also have to provide notice to the heirs and any interested parties of the probate case and the date set for the hearing. The executor will also be responsible for ensuring that the property is properly maintained and insured during the probate process.

If the decedent's will or trust has detailed instructions on how the property should be distributed, it's usually much easier to transfer the property to the designated beneficiaries. The executor will have to follow the instructions in the will or trust in regards to the property and distribute it accordingly.

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