Washington’s capital gains excise tax now reaches 9.9% on gains above $1 million, and the newly enacted Millionaire Tax adds another layer starting in 2028. Whether your closing is months away or years out, structuring your exit today can save seven figures.
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Without Exit Tax Planning
You pay 23.8% in federal capital gains and NIIT on the full $5M gain ($1,190,000), plus Washington's tiered excise tax: 7% on the first $1M of taxable state gain and 9.9% on the remainder above the $278,000 standard deduction (approximately $455,000). No deferral. No allocation strategy. No exemption review. Every dollar of gain is fully exposed and taxed in the year of closing.
With Capital Tax Exit Planning Service
Through installment sale deferral, purchase price allocation across asset categories, qualified family-owned small business exemption review, and entity structure optimization, the estimated combined federal and Washington state tax due at closing falls to approximately $490,000 on the same $5M gain. That is over $1.1 million retained by you rather than sent to the IRS and the Washington Department of Revenue.
Assume a total business sale gain of $5,000,000
| Tax Component | Unstructured Sale (No Planning) | Structured Exit Strategy |
|---|---|---|
| Total Business Sale Gain | $5,000,000 | $5,000,000 |
| Federal Capital Gains + NIIT (23.8%) | $1,190,000 | $285,600 (balance deferred via installment) |
| Washington Capital Gains Excise Tax | ~$455,000 | ~$204,400 (reduced via allocation and exemption) |
| Total Combined Tax at Closing | $1,645,000 | ~$490,000 |
| Proceeds You Retain | $3,355,000 | ~$4,510,000 |
Total Savings from Structured Exit Planning
$1,155,000+
Based on a $5M gain applying Washington’s 2025 standard deduction of $278,000 and standard federal long-term capital gains rates. Individual results depend on deal terms, entity type, asset allocation, and exemption eligibility. Consult our team for a fact-specific analysis of your transaction.
Washington’s capital gains excise tax surcharge took effect January 1, 2025, and the Millionaire Tax was signed into law on March 30, 2026. Together, these laws have changed the exit planning equation in this state. Four scenarios require careful analysis before you sign anything with a buyer.
This is one of the most common and costly planning errors our team encounters. Washington's capital gains excise tax applies to long-term gains from business equity sales by Washington-domiciled individuals. With the 2025 surcharge in place, gains above $1 million above the annual standard deduction are taxed at 9.9%, not zero. Many sellers discover this only after closing, when the Washington Department of Revenue return is due. Our service calculates your excise tax exposure and reviews your exemption eligibility before you negotiate deal terms.
Washington's Millionaire Tax (Senate Bill 6346), signed March 30, 2026, imposes a 9.9% income tax on annual income above $1 million, effective January 1, 2028. A sale closing in 2028 or later that generates income above that threshold could trigger this additional state tax layer on top of the existing excise tax. Sellers with any flexibility on their closing date should model whether completing the transaction before 2028 produces a meaningfully better after-tax outcome. Our team runs that comparison as a standard part of every Washington exit engagement.
In an asset sale, portions of the purchase price allocated to depreciated equipment trigger recapture taxed at ordinary income rates up to 37% federally, with Washington's excise tax applied on the remaining capital gain. In a stock sale, the entire gain is generally a capital transaction. Most buyers push for asset purchases. Sellers who accept the buyer's preferred structure without a tax analysis frequently pay six figures more in combined state and federal tax than necessary. This negotiation must happen before the letter of intent is signed, which is precisely where our advisory service engages.
Washington law exempts gains from the sale of a qualified family-owned small business from both the capital gains excise tax and the newly enacted Millionaire Tax. However, the qualifying criteria are specific, require supporting documentation, and must be properly asserted on your Washington tax return. Many sellers either do not know the exemption exists or assume they do not qualify without ever conducting the analysis. Our exit planning service includes a full exemption eligibility review as a standard component of every Washington business sale engagement we undertake.
Not every exit is structured the same way. Both the business and the deal terms must meet specific conditions to qualify for the most favorable combined federal and Washington state tax treatment. Here is what our advisory team reviews before your transaction closes.
Washington Exit Tax Planning Criteria
5 / 5 Complete
Washington Capital Gains Excise Tax Exposure Calculated
We determine your exact Washington excise tax liability under the 2025 tiered rate structure: 7% on the first $1M of taxable state gain and 9.9% on gains above that, after applying the inflation-adjusted annual standard deduction. This calculation must happen before deal terms are finalized, not after the purchase agreement is signed.
Qualified Family-Owned Small Business Exemption Reviewed
Washington provides a full exemption from the capital gains excise tax and the Millionaire Tax for qualifying family-owned small business sales. The criteria are specific to ownership structure and transaction terms. Our team conducts the eligibility review, prepares the supporting documentation, and ensures the exemption is properly asserted on your Washington Department of Revenue filing.
Asset vs. Stock Sale Structure Determined Before the LOI
The choice between an asset sale and a stock sale affects your federal depreciation recapture exposure and your Washington capital gains excise tax base simultaneously. This is a negotiation decision, not a paperwork detail. Our advisory team quantifies the after-tax difference between structures so you enter LOI negotiations with a clear number attached to each option.
Installment Sale and Millionaire Tax Timing Reviewed
Spreading gain recognition across multiple years through an installment sale reduces both federal and Washington excise tax exposure in the year of closing. For sellers with closing flexibility, we also model the after-tax difference between transacting before and after January 1, 2028, when the Millionaire Tax takes effect, and provide a recommendation based on your specific income and gain profile.
Deferral and Reinvestment Options Evaluated
Qualified Opportunity Zone investments, Charitable Remainder Trusts, and entity restructuring executed before the sale can each defer or reduce gain recognition at both the federal and Washington state level. These strategies require advance setup and cannot be initiated after your transaction closes. We review all options available to you and model the after-tax impact of each before you commit to a closing date.
| Planning Area | Washington-Specific Rule |
| Capital Gains Excise Tax | 7% base rate; 9.9% on gains over $1M above $278,000 deduction (2025+) |
| Millionaire Tax (SB 6346) | 9.9% on income over $1M; effective January 1, 2028 |
| Qualified Business Exemption | Family-owned small business sales may be fully exempt from both taxes |
| Deal Structure Decision | Asset vs. stock sale must be resolved before letter of intent is signed |
| Installment Sale | Payment structure must appear in the purchase agreement; cannot be added after closing |
If your business sale qualifies under these planning criteria, you are positioned to keep significantly more of what you have built. A missed step before signing can cost seven figures and cannot be undone after closing.
Senate Bill 5813, retroactive to January 1, 2025, added a 2.9% surcharge on Washington capital gains exceeding $1 million above the annual standard deduction, bringing the top rate from 7% to 9.9%. Exit planning now requires modeling both tiers of the excise tax alongside federal exposure for every large business sale.
Senate Bill 6346, signed March 30, 2026, imposes a 9.9% income tax on annual income above $1 million, effective January 1, 2028. Qualified family-owned small business sales and real property gains are excluded. For sellers with flexibility on timing, closing before 2028 may produce a materially better after-tax result. The law also faces potential constitutional challenges that our team monitors closely.
Both Washington’s capital gains excise tax and the Millionaire Tax include an exemption for gains from the sale of a qualified family-owned small business. The criteria depend on ownership structure, family involvement, and transaction terms. Claiming it requires proper documentation filed with the Washington Department of Revenue. Our team assesses your eligibility and prepares the supporting documentation as part of every exit engagement.
In many cases, yes. Asset sales trigger depreciation recapture taxed at ordinary income rates up to 37% federally, with Washington’s excise tax applied on the remaining capital gain. Stock sales treat the entire gain as a capital transaction, often producing a lower combined rate. Our team quantifies the after-tax difference between both structures before you enter LOI negotiations with the buyer.
Washington sellers have several options. An installment sale spreads gain recognition across multiple years, reducing both federal and Washington excise tax exposure at closing. Qualified Opportunity Zone investments defer federal capital gains if proceeds are reinvested within 180 days. A Charitable Remainder Trust removes the asset from your taxable estate while providing ongoing income. Each strategy requires setup before closing. Our team reviews all options and models the after-tax impact of each for your specific situation.
Disclaimer: This is not tax advice, and it is recommended to consult a tax professional, as every tax situation is unique.
