This is one of the most common questions Emiley and Zech hear from Spokane homeowners preparing to sell. The short answer for most Spokane sellers is no federal tax and no state tax. Here is exactly why.
Washington Does Not Tax Real Estate Gains
Washington state has a capital gains excise tax, but real estate has been exempt from it since the law took effect, even after the Washington State Supreme Court upheld the tax as constitutional in March 2023. If you sell a home in Spokane, this state tax does not apply to you, regardless of how much the property has appreciated.
The Federal Exclusion Covers Most Spokane Sellers
The federal government allows most homeowners to exclude a large portion of their profit under IRS Section 121.
- Single sellers can exclude up to $250,000 of gain
- Married couples filing jointly can exclude up to $500,000 of gain
- To qualify, you must have owned and lived in the home as your primary residence for at least 2 of the last 5 years before the sale
Example: A Spokane homeowner buys a house on South Hill for $300,000 and sells it five years later for $480,000. The gain is $180,000. If they meet the ownership and use test, the entire gain is excluded and no federal capital gains tax is owed.
How Your Cost Basis Lowers Your Taxable Gain
Your gain is not simply sale price minus purchase price. The IRS lets you add the cost of major capital improvements, such as a new roof, a kitchen remodel, or an HVAC replacement, to your original purchase price. This is called your adjusted cost basis, and it reduces your taxable gain. Keep receipts, permits, and invoices for any qualifying improvements.
What This Means for Spokane and Spokane Valley Sellers
With Spokane Valley's median sale price at $458,645 according to the Spokane Realtors Association, most local sellers fall comfortably within the federal exclusion limits and owe no capital gains tax at all. Inherited Spokane properties also benefit from a stepped-up cost basis at the date of death, which further reduces taxable gain for heirs who later sell.
One Tax to Plan For: Real Estate Excise Tax
Washington does charge a Real Estate Excise Tax (REET) on the sale price itself, separate from capital gains tax. This is calculated using a tiered structure and varies slightly by Spokane County jurisdiction. Your real estate agent or closing company will calculate this exactly for your transaction.
Talk to a Spokane Real Estate Expert Before You Sell
Every homeowner's situation is different. Emiley and Zech at Rios and Co Real Estate help Spokane sellers understand exactly what to expect at closing, including REET costs and how the exclusion applies to their specific sale.
Reach out to Rios and Co Real Estate for a free seller consultation.
