Washington’s Real Estate Excise Tax

• August 7, 2023
• Carey M. Heyman, CPA

I recently had the pleasure of collaborating with some of our real estate leaders in Western Washington, including our new friends from Frost & Company, PLLC. We spent time discussing all things Washington real estate, including their state and local Real Estate Excise Tax (REET). Washington property owners and investors may know the REET all too well, but those newer to the State may not.

The sale of real property or transfer of a controlling interest in an entity that owns real property is subject to the REET. Effective February 1, 2023 a new graduated tax structure was introduced at the state level, with the highest rate being 3%. The rates for the local excise tax vary, but none exceed 0.75% and most are 0.50% or 0.25%.

The seller of real property is responsible for payment of the REET, but the buyer would be liable for the tax if it not paid by the seller. Unpaid tax can become a lien on the transferred property.

The Washington Administrative Code defines several concepts that are imperative to understanding the REET:

• What is considered a sale of real property?
  • Any conveyance, grant, assignment, quitclaim, or transfer of the ownership of or title to real property, including standing timber, or any estate or interest therein for a valuable consideration.
  • Any contract for such a conveyance, grant, assignment, quitclaim, or transfer, and any lease with an option to purchase real property, including standing timber, or any estate or interest therein or other contract under which possession of the property is given to the purchaser, or any other person at the purchaser’s direction, and title to the property is retained by the vendor as security for the payment of the purchase price.
  • The grant, relinquishment, or assignment of a life estate in property.
  • The grant, assignment, quitclaim, sale, or transfer of improvements constructed upon leased land. 
• What is a controlling interest and what is a controlling interest transfer?
  • A controlling interest is 50% or more of the capital, profits, or beneficial interest in the entity.
  • A controlling interest transfer occurs when there is a 50% or more change of ownership in an entity.
  • The “taxable transfer period” or “lookback period” is the time frame over which multiple purchases are combined to determine whether a controlling interest has been transferred. The date of sale for REET assessment purposes, is the date the buyer reaches a 50% or more interest. For transactions occurring on or after January 1, 2019, the time frame is 36 months.
• How are consideration or selling price defined?
  • In the context of sale, the full amount that is paid for the real property.
    • Money or anything of value, either tangible or intangible, paid or delivered, or contracted to be paid or delivered, including performance of services, in return for the transfer of real property.
    • Includes the amount of any lien, mortgage, contract indebtedness, or other encumbrance, given to secure the purchase price, or any part thereof, or remaining unpaid on the property at the time of sale.
  • In the case of a controlling interest transfer, the true and fair value of the real property, including leasehold improvements, owned by the entity at the time the controlling interest is transferred.

The Washington Department of Revenue lists close to 20 exemptions that are available for the REET.

For more information, visit the Washington Department of Revenue’s REET landing page, which has incredible FAQs and examples.

Special thanks to Jenni Regimbal, Dan Frein, Kevin Cox, Robert Best, Scott Ritchie, and Joon Park for their assistance with this blog post.

Tags: 50%, Exemption, Real Estate, REET, Tax, Washington, Federal and state taxation, including proposed regulations, Industry trends/analysis, Year-end tax planning | 3 Comments »