Washington state's sharp increase in home prices has notably benefited longtime residents but also introduced a financial burden termed the 'hidden home equity tax.' Approximately 64.8% of homeowners now surpass federal capital gains tax exemptions. Tax exclusion limits set in 1997 have become misaligned with contemporary home values, leading to average taxable gains and potential federal tax liabilities that are substantial. The state's Real Estate Excise Tax further complicates these financial obligations, affecting homeowners across various regions including Seattle, Bellevue, and Spokane.
According to the National Association of REALTORS®, 64.8% of homeowners in Washington now exceed the federal capital gains tax exemption, making Washington one of the most heavily impacted states.
Home prices have soared nationwide, with cumulative inflation pushing values more than 260% higher over the last 27 years, creating disparities with outdated tax policies.
Homeowners with gains above the $250,000 threshold have an average taxable appreciation of $240,827, with potential federal tax bills reaching nearly $46,000.
Washington ranks near the top among all 50 states for capital gains tax exposure, with nearly two-thirds of homeowners exceeding the federal exemption level.
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