Income/Franchise:
Washington DOR Issues Capital Gains Tax Guidance on §1256 Contracts and Credit for Taxes Paid to Other States

Interim statement regarding the capital gains excise tax and Section 1256 contracts, Wash. Dept. of Rev. (10/11/23); Interim statement regarding the capital gains excise tax and calculation of credit for taxes paid to another taxing jurisdiction, Wash. Dept. of Rev. (10/11/23). The Washington Department of Revenue (Department) issued guidance in the form of “interim statements” intended to provide taxpayers with additional information on calculating Washington’s tax on long-term capital gains earned by some individuals from the sale or exchange of certain capital assets at the rate of 7% beginning January 1, 2022 [see E.S.S.B. 5096 and previously issued Multistate Tax Alert (May 13, 2021) for more details on this state tax, as well as previously issued Multistate Tax Alert (March 27, 2023) for more details on the Washington Supreme Court’s decision upholding the validity of the tax]. One interim statement explains that for purposes of Washington’s capital gains excise tax, “Section 1256 contracts” that are treated as sold at the close of the taxable year pursuant to Internal Revenue Code section 1256(a) are considered sold for Washington capital gains excise tax purposes. Thus, any long-term capital gain or loss from such sale, as determined by Internal Revenue Code section 1256(a)(3), is included in the calculation of the individual’s adjusted capital gain and Washington capital gains to the extent such gain or loss is included in calculating the individual’s federal net long-term capital gain, and the Department provides some examples to illustrate. Another interim statement addresses computation of the Washington capital gains excise tax credit for taxes paid in another taxing jurisdiction, including two example scenarios to help illustrate this calculation. Please contact us with any questions.