Income/Franchise:
Washington DOR Cancels Previously Issued Capital Gains Tax Guidance on §1256 Contracts
Interim statement regarding the capital gains excise tax and Section 1256 contracts, Wash. Dept. of Rev. (revoked on 1/26/24). The Washington Department of Revenue (Department) canceled its previously issued interim guidance statement covering “Section 1256 contracts,” which was issued in October 2023 [see State Tax Matters, Issue 2024-43, for details on this previously issued guidance] and 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]. The Department now states that for Section 1256 contracts, only gains and losses recognized from a taxpayer’s sale or exchange of a Section 1256 contract are included in the Washington capital gains excise tax base, and only if the contract was held for more than one year. In such situations, “the taxpayer should report the long-term capital gain or loss they recognized for federal tax purposes from the sale or exchange, i.e., 60% of the total gain or loss.” Please contact us with any questions.f
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