BLOG ON NEW ESTATE TAX CHANGES FOR WASHINGTON STATE
State Estate Tax Changes
Rate and Exemption Adjustments
The bill also makes substantial updates to Washington’s estate tax, which is imposed on the value of taxable estates when a resident dies or when a non-resident owns property in the state:
- Raises the exclusion amount — the portion of an estate exempt from taxation — from $2.193 million to $3 million for deaths occurring on or after July 1, 2025
- Resumes annual inflation adjustments to the exclusion amount beginning in 2026, using a consumer price index for the Seattle metropolitan area
- Adopts a new marginal tax rate schedule for taxable estates above $3 million:
- Tax rates start at 15% on the first $1 million of taxable estate value above the $3 million exemption
- Rates increase in brackets, up to a maximum 35% marginal rate for amounts exceeding $9 million
Example impact on an estate of $5 Million:Before 7/1/2025: For an estate valued at $5 million, the first $2.193 million is exempt, and the Washington tax due would be $361,050. After 7/1/2025: For an estate valued at $5 million, the first $3 million is exempt, and the Washington tax due would be $250,000. Smaller estates benefit from the new rate brackets. |
Example impact on an estate of $10 Million:Before 7/1/2025: For an estate valued at $10 million, the first $2.193 million is exempt, and the Washington tax due would be $1,257,365. After 7/1/2025: For an estate valued at $10 million, the first $3 million is exempt, and the Washington tax due would be $1,330,000. Larger estates are taxed more under the new rate brackets. |
Changes to Family-Owned Business and Farm Deductions
The legislation expands deductions for family-owned businesses and farms:
- Increases the deduction for Qualifying Family-Owned Business Interests (QFOBI) from $2.5 million to $3 million starting July 1, 2025
- Indexes the QFOBI deduction to inflation beginning in 2026
- Adds a "qualified nonfamilial heir" provision, allowing long-term farm employees who materially participated in farming operations to qualify for existing estate tax deductions when inheriting farm property
The bill also clarifies the requirements for maintaining deductions — including potential recapture taxes if farming operations are discontinued or property is sold within three years of the decedent’s death.
