Higher Real Estate Taxes

A few weeks ago, Washington State legislature passed a bill in the Senate that would greatly impact all Washingtonians.  Late on a Thursday evening in April, a narrow vote of 26-22, Senate Bill 5998 headed to the House of Representatives.  This bill also passed by a slightly larger margin of 56-42.  Currently awaiting signature from Governor Inslee, this bill will be passed and enacted into law by January 2020.

What is Senate Bill 5998? 

This bill is a graduated real estate excise tax, which effects all homeowners who are selling their homes.  The current real estate excise tax, or REET, is a flat 1.28% statewide.  So if you were to sell your home today, you would pay 1.28% of the sales price in taxes.  However, after January 2020, the amount you pay will depend on the selling price.  Here is how it breaks down:

·         Selling price is $500,000 or less – REET is 1.1%

·         Selling price is $500,001 to $1,500,000 – REET is 1.28%

·         Selling price is $1,500,001 to $3,000,000 – REET is 2.75%

·         Selling price is more than $3,000,000 – REET is 3%

While for most homeowners, this new bill doesn’t change their tax rate.  However, it decreases the rate for those selling for less than $500,000 and it is a significant increase for those within the $1.5 million or more range.  The sale of unimproved land, agriculture, and timber does not change and remains at the flat rate.  Moreover, starting in 2022 and every four years thereafter, the sales price range will be adjusted by 5% or the consumer price index (CPI), whichever is less. 

This increase, as part of a proposed plan by Governor Inslee, would bring in hundreds of millions of dollars in the first few years alone.  Sponsored by Senator Nguyen (D-White Center), the additional funds from the graduated tax rate would be placed into the education legacy trust account.  This account will help support our schools, many of which are underfunded.  However, based on the senate bill report, distribution to the education legacy trust account will cease after July 1, 2023. 

Opposers of the bill are concerned about the disproportion of those who are affected, especially commercial and multi-family units.  Opposers feel this will also affect housing affordability and availability.  With the increase in REET, homeowners may decide not to sell thus diminishing the projected added revenue. 

While this bill is currently waiting for the official signature, it is safe to say this bill will be enacted and take effect in January 2020.