Calculating the graduated actual property excise tax
Instance A
Let’s say you’re promoting your own home in Oakville, Washington, for $600,000. For the reason that native REET in Oakville is 0.25%, the primary $525,000 is taxed at 1.35% (.25% + 1.1%). The remaining $75,000 is taxed at 1.53% (.25% + 1.28%).
| $525,000 x 1.35% = | $7,087.50 |
| $75,000 x 1.53% = | $1,147.50 |
| Complete taxes | $8,235 |
Instance B
Now, let’s say you’re promoting your own home in Seattle for $4 million. For the reason that native REET in Seattle is 0.5%, the primary $525,000 is taxed at 1.60%. The following $1 million is taxed at 1.78%. The following $1.5 million is taxed at 3.25%, and the ultimate $975,000 is taxed at 3.5%.
| $525,000 x 1.60% = | $8,400 |
| $1,000,000 x 1.78% = | $17,800 |
| $1,500,000 x 3.25% = | $48,750 |
| $975,000 x 3.5% = | $34,125 |
| Complete taxes | $109,075 |
Is promoting a home thought of revenue or taxable acquire?
Since Washington doesn’t have an revenue tax, and actual property is exempt from the state’s proposed capital features tax – which is tied up within the courts anyway – the income constructed from the sale of a house can’t actually be labeled as both revenue or taxable acquire on the state degree.
On the federal degree, a house sale may be taxed as both common revenue or a capital acquire, relying on how lengthy you’ve owned the property. If you happen to purchase and promote the house throughout the identical yr, any revenue you make from that sale is taken into account a short-term capital acquire and is taxed on the identical price as unusual revenue.
If you happen to’ve owned the house for no less than a yr earlier than promoting it, then any revenue is taken into account a long-term capital acquire, which usually has a decrease tax price.
Instance
Let’s say you purchase a house for $200,000 after which promote it for $300,000 9 months later. That $100,000 can be thought of common revenue and be taxed primarily based in your tax bracket, of which there are seven starting from 10% to 37%.
If you happen to promote the house after a yr of proudly owning it, the revenue can be thought of a long-term acquire and taxed at both 0%, 15%, or 20% (probably increased in sure conditions), relying in your general revenue that yr.
In a minute, we’ll assessment how features are federally taxed on a house you’ve owned for 2 or extra years earlier than promoting.
