Big Changes Coming to Real Estate Excise Tax for Washington State Homes

wordswag_1556818054305The Washington State Senate has passed revisions to excise tax that is paid when real estate is sold or transferred. Instead of having a flat rate, the new tax once signed into law by Governor Inslee, will be graduated. Some will enjoy a lower tax rate while others will pay a significantly higher tax rate. Real estate excise tax is typically a cost paid for by the seller. In San Juan County, the excise tax has been split by both the seller and buyer of real estate. Many would argue that excise tax (as with other cost of selling, such as real estate commission) is often passed onto the buyer as it is factored into the sales price.

Currently, most areas have an excise tax rate based on 1.28% plus an 0.50% from local jurisdictions for a total of 1.78%  of the sales price of a home.

The proposed graduated excise tax rate looks like this:

  • 1.1 percent if the selling price is equal to or less than $500,000
  • 1.28 percent on the portion of the selling price that is greater than $500,000 but equal to or less than $1,500,000
  • 2.75 percent on the portion of the selling price that is greater than the $1,500,000 but equal to or less than $3,000,000
  • 3 percent on the portion of the selling price that is greater than $3,000,000

Here are some comparisons of how this proposed sales tax pencils out based on a current excise tax rate of 1.78% and the proposed rates listed above. I’m factoring an additional 0.50% to the proposed tax rates as I’m sure our local cities and counties are not going to give that up anytime soon!

$500,000 sales price = $8,900 in excise tax at 1.78% and $8,000 at the proposed 1.6% (1.1 plus 0.5).  The proposed tax is $900 less.

$725,000 sales price = $12,905 at the flat 1.78% . The new proposed graduated tax rate would be $12,005. The proposed tax is $900 less.

  • $500,000 at 1.6% (1.1% plus 0.5% for assumed county/city excise) = $8,000 plus
  • $225,000 at 1.78% (1.28% plus 0.5%) = $4,005 =
  • $12,005 in proposed excise tax.

$1,500,000 sales price = $26,700 at 1.78% tax. The proposed graduated tax rate would be $25,800. The proposed tax is $900 less.

  • $500,000 at 1.6% = $8,000, plus
  • $1M at 1.78% = $17,800 =
  • $25,800 in proposed excise tax.

$1,750,000 sales price = $31,150 at 1.78% tax. The proposed graduated tax rate would be $33,925. The proposed tax is $2,775 higher than the current rate.

  • $1.5M at $25,800, plus
  • $250,000 at 3.25% (2.75 plus 0.5) = $8,125 =
  • $33,925

$2,000,000 sales price = $35,600 at current 1.78% tax rate. The proposed tax rate (based on assuming 0.5% for city/county excise) would be $42,050. The proposed tax would be $6,450 higher than the current rate.

  • $1.5M = $25,800, plus
  • $500,000 at 3.25% (2.75 plus 0.5) = $16,250 =
  • $42,050 in proposed excise tax.

$3,000,000 sales price = $53,400 at the current 1.78% tax rate. The proposed tax rate (assuming adding 0.5% for the city/county excise) would be $74,550. The proposed tax would be  $21,150 higher.

  • $1.5M = $25,800, plus
  • $1.5M at 3.25% = $48,750 =
  • $74,550

$4,000,000 sales price = $71,200 at the current 1.78% tax rate. The proposed tax rate would be $109,550. The proposed tax would be $38,350 higher.

  • $3M = $74,550
  • $1M at 3.5%  (3 plus 0.5 for city/county) = $35,000 =
  • $109,550

Bottom line, if this passes…and I think it will, if you’re selling a home priced around $1,500,000 or less, this will not have a dramatic impact on you and actually, you will pay less compared to the current tax rate. This assuming my assumptions are correct with the 0.5% addition for the city/county excise tax portion (as we currently have in the greater Seattle area).

It will be interesting to see how this impacts higher priced homes which we have no shortage of in the greater Seattle and Bellevue areas. Will we see a rush of multi-million dollar homes go on the market with hopes of selling before the end of the year?

If you are interested in buying a home located anywhere in Washington state, I am happy to help you. I have been helping people with their mortgage needs in all price ranges since 2000 at Mortgage Master Service Corporation.

 

 

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