Washington Real Estate Excise Tax (REET) and a 1031 Exchange

The graduated schedule is applied to slices of the price, not the whole

RCW 82.45.060 sets four rates and tells the Department to adjust the thresholds every four years by the lesser of shelter cost inflation or 5%, rounded to the nearest thousand and effective the following January 1. The Department's REET page gives the current thresholds, $525,000, $1,525,000 and $3,025,000, and the thresholds that take effect January 1, 2027: $551,000, $1,551,000 and $3,051,000.

Each rate applies only to the portion of the price inside its band. Hypothetical: a $2,000,000 Tacoma apartment building closing in 2026 pays 1.1% on the first $525,000 ($5,775), 1.28% on the next $1,000,000 ($12,800) and 2.75% on the remaining $475,000 ($13,062.50), a state tax of $31,637.50. If the local rate is 0.5%, add $10,000, for $41,637.50 before the $5 technology fee. Run your own numbers with your CPA.

Local rates come from RCW 82.46.010, which allows a county or city to impose 0.25% or, alternatively, up to 0.5%, and RCW 82.46.035, which adds a voter-approved 0.25% for jurisdictions planning under the Growth Management Act. The county treasurer's rate sheet for the parcel's location is the only reliable source for the combined figure.

It is the seller's tax, and section 1031 does not defer an excise tax

RCW 82.45.080 could not be shorter: "The tax levied under this chapter is the obligation of the seller." The Department may collect it as a debt or foreclose the lien, and the REET page notes that "usually, the seller pays this tax, but if they don't, the buyer is responsible." The tax is paid to the county treasurer on the date of sale with the Real Estate Excise Tax Affidavit, and the deed will not record without it.

Section 1031 defers the recognition of gain for income tax purposes. REET is an excise on the sale itself, measured by the selling price rather than the gain, so there is nothing for the exchange to defer. The Department's exemption list in chapter 458-61A WAC includes gifts, inheritances, mere changes in form of ownership, foreclosures and nominee transfers, and the one entry that mentions exchanges is the facilitator rule discussed below.

Because the tax comes out of the sale proceeds at closing, it reduces the equity the qualified intermediary receives. It is a transactional cost paid from exchange funds without creating boot, as explained on closing costs paid from exchange funds, but the replacement budget has to be set net of it.

WAC 458-61A-213 exempts only the facilitator's transfer to you, on three conditions

WAC 458-61A-213 deals with exchanges where a facilitator takes title. The initial acquisition of property by the facilitator is taxable, and so is the facilitator's later transfer unless three things are true: "the proper tax was paid on the initial transaction," a supplemental statement from the facilitator accompanies the affidavit, and "the funds used by the exchange facilitator to acquire the property were provided by the grantee and/or received from the proceeds of the sale of real property owned by the grantee."

The rule's own example makes the point. The seller's transfer to the facilitator is taxed; the facilitator's transfer to the exchanger whose sale proceeds funded the purchase is exempt; but if the facilitator later sells the same property to someone whose funds were not used, that sale is taxable. The exemption prevents a second tax on the same money, nothing more.

In a standard forward exchange the facilitator never takes title, because direct deeding under Reg. section 1.1031(k)-1(g)(4)(iv) lets the intermediary be treated as acquiring and transferring the property without holding it. The rule matters in reverse and improvement exchanges, where an accommodation titleholder parks the property; the structure and its 180-day limit are on the reverse 1031 exchange guide.

Selling the entity does not avoid the tax once half of it changes hands

WAC 458-61A-101 treats the transfer or acquisition of a controlling interest, "fifty percent or more of the capital, profits, or beneficial interest" in an entity that owns Washington real property, as a sale of that property. Transfers within a 36-month window are aggregated, the seller of the interest is generally liable, and where no deed is recorded a controlling interest affidavit must be filed within five days of the sale.

The rule catches partnership restructurings done ahead of an exchange. Redeeming partners or admitting investors can cross 50% of the entity within three years without any deed, with REET due on the property's full value. Review that risk with the section 1031 timing problems that such restructurings create, covered on drop-and-swap 1031 strategies.

A fractional DST interest is far from a controlling interest, and a trust that owns property in other states is outside Washington's tax entirely. Washington has no income tax withholding at closing and no capital gains tax on real estate, so REET is the state's one bite at the sale; the full picture, including the 2027 thresholds and the state's estate tax, is on 1031 exchange rules in Washington.

What the closing file should show

The Real Estate Excise Tax Affidavit, single or multiple location, is signed by both parties and filed with the county treasurer with the payment. Late payment adds 5% after one month, 10% after two and 20% after three, plus interest. If a facilitator holds title at any stage, the supplemental statement required by WAC 458-61A-213 goes with the affidavit for the second transfer, with the first transfer's affidavit number as proof that tax was paid.

On the settlement statement REET appears as a seller charge paid through escrow, and it is one of the lines the intermediary should see labelled as a transfer tax rather than a loan cost; how to read the rest of the statement is on reading a settlement statement for a 1031 exchange. The other transfer tax regimes exchangers meet are collected on the closing hub.

• Price the state tiers plus the parcel's local rate before setting the replacement budget.
• Confirm the closing date against January 1, 2027, when the thresholds move up.
• Use direct deeding in a forward exchange so no facilitator deed exists.
• In a parking arrangement, keep the facilitator's funding trail: your money or your sale proceeds, nothing else.
• Check entity transfers in the prior 36 months before selling an LLC interest instead of the land.