State Guide 9 min read Updated June 2026

Rental Property Taxes in Washington State (2026 Guide)

Washington has no state income tax — but landlords still navigate a graduated real estate excise tax on every sale and, new in 2025, a statewide cap on rent increases. Here is what WA landlords need for 2026, including why the new capital-gains tax does not hit your rental sale.

State Income Tax
None
Cap Gains on RE Sale
Exempt
REET (on sale)
1.1%–3.0%
Rent Increase Cap
7% + CPI

In This Guide

  1. 1. No State Income Tax — and the Capital Gains Tax Carve-Out
  2. 2. Property Tax in Washington
  3. 3. Real Estate Excise Tax (REET) on Sales
  4. 4. B&O and Sales Tax: Long-Term vs Short-Term
  5. 5. The 2025 Rent Increase Cap (HB 1217)
  6. 6. LLC Fees
  7. 7. Security Deposit Rules
  8. 8. How SheltrIQ Helps Washington Landlords

1. No State Income Tax — and the Capital Gains Tax Carve-Out

Washington has no state individual income tax, so your net rental income is not taxed at the state level — a meaningful advantage over high-rate states. You still owe federal tax on Schedule E income.

Washington did enact a 7% tax on long-term capital gains above an annual threshold (about $278,000 for 2025, inflation-adjusted; an extra 2.9% applies above $1M). But the critical point for landlords: real estate is exempt (RCW 82.87.050). Gains from selling your rental property directly are not subject — the tax targets stocks and other assets.

Selling a rental in Washington: the federal capital-gains and depreciation-recapture rules still apply, but the WA capital-gains tax does not — real estate is carved out. (Gains held through certain entities can be exempt too, to the extent attributable to the real estate.)

2. Property Tax in Washington

Property tax is county-administered and moderate — a statewide average around 0.9% effective. Washington uses a budget-based levy system: each district’s regular levy can grow only 1% per year (plus new construction), which keeps increases gradual (RCW 84.55).

  • No homestead relief for rentals — owner-occupancy relief programs don’t cover investment property.
  • Levy-based, not rate-based — your bill reflects district budgets and total assessed value, so a rising market doesn’t automatically raise the levy beyond the 1% limit.

3. Real Estate Excise Tax (REET) on Sales

Washington’s biggest landlord-specific tax is the graduated REET on the sale price, paid when you sell:

  • Up to $525,000: 1.1%
  • $525,000.01 – $1,525,000: 1.28%
  • $1,525,000.01 – $3,025,000: 2.75%
  • Above $3,025,000: 3.0%

A local REET (commonly +0.25% to +0.5%) is added on top. On a high-value sale this is a substantial cost — factor it into your hold-vs-sell math.

4. B&O and Sales Tax: Long-Term vs Short-Term

How you rent determines whether Washington’s B&O and sales taxes apply:

  • Long-term residential rental (30+ days) — exempt from B&O tax and retail sales tax. A standard month-to-month or annual lease is not a taxable activity.
  • Short-term lodging (under 30 days) — taxable: Retailing B&O plus retail sales tax and applicable transient/lodging taxes, and you must register and collect.

5. The 2025 Rent Increase Cap (HB 1217)

Washington long preempted local rent control, but in 2025 it enacted a statewide cap on rent increases (HB 1217, effective May 7, 2025) — the biggest recent change for WA landlords.

  • Cap = lesser of 10% or 7% + CPI over any 12-month period. The maximum allowed for Jan 1–Dec 31, 2026 is 9.683%.
  • No increase in the first 12 months of a tenancy, and 90 days’ written notice is required before any increase.
  • New-construction exemption — buildings first occupied 12 or fewer years before the notice are exempt; manufactured/mobile-home lots are capped at 5%. Enforced by the Attorney General.

This is a rent-increase cap, not classic rent control — but plan your annual increases around it and the 90-day notice rule. Newer buildings (≤12 years) are still exempt.

6. LLC Fees

A Washington LLC files an annual report with the Secretary of State for $70. There’s no state income tax, and bare long-term residential rental isn’t a B&O activity, so an LLC holding rentals generally has minimal ongoing state filings.

7. Security Deposit Rules

Washington’s Residential Landlord-Tenant Act (RCW 59.18) governs deposits:

  • No statutory cap on the deposit amount.
  • Move-in checklist required — you can’t collect a deposit without a written rental agreement and a signed, dated condition checklist (the tenant gets a copy).
  • Return within 30 days of termination and move-out, with a specific written statement of any deductions.
  • Tax treatment — a deposit isn’t income when received; include it only when (and to the extent) you keep it.

8. How SheltrIQ Helps Washington Landlords

With no state income tax, the WA landlord’s tax work is mostly federal — and a sale’s numbers — which is exactly SheltrIQ’s strength:

  • Depreciation & recapture — builds MACRS schedules and tracks the depreciation that drives your federal gain (and recapture) when you sell.
  • Disposition modeling — estimates the federal tax on a sale, where the REET and federal recapture matter even though WA charges no income tax.
  • AI Schedule E classification — keeps your federal return accurate and audit-ready.
  • Short- vs long-term flagging — helps you keep B&O/sales-tax obligations straight if you run any sub-30-day units.

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