Washington Capital Gains Tax 2026: REITs, DSTs and K-1 Funds

This page is for a Washington resident (or someone who lived there when a sale happened) who holds a rental, a Delaware statutory trust interest, a non-traded REIT, an interval fund or a K-1 real estate LLC, and wants to know which sale or payout can reach the state’s capital gains tax. It does not cover the federal rates, which are in our capital gains tax on real estate guide, or the state’s separate estate tax, which is in our Washington estate tax page.

The tax in four numbers

The tax is an excise tax on the sale or exchange of long-term capital assets, held for “more than one year” (RCW 82.87.020(7)), and only a natural person pays it. It starts from your federal net long-term capital gain, then subtracts exempt sales and the standard deduction, and the gain must be allocated to Washington. For intangible property such as shares and fund interests, the allocation test is domicile: gain is allocated to Washington “if the taxpayer was domiciled in this state at the time the sale or exchange occurred” (RCW 82.87.100(1)(b)).

The deduction is shared by spouses or domestic partners regardless of whether they file jointly or separately (RCW 82.87.060(1)). A year with a net loss produces no tax and no carryover (RCW 82.87.040(3)). The $1,000,000 threshold for the extra 2.90 percent is written into the statute without an inflation adjustment, while the deduction is adjusted by the Seattle-area consumer price index (RCW 82.87.150).

What the exemptions cover, and the two words that decide funds

The exemption list in RCW 82.87.050 has nine items. Four matter to a real estate investor:

• Subsection (1), real estate: “All real estate transferred by deed, real estate contract, judgment, or other lawful instruments that transfer title to real property and are filed as a public record with the counties where real property is located.” The Department’s FAQ adds that it does not matter how long you owned it, whether you lived in it, where it is, whether it is commercial or residential, or who owns it.
• Subsection (2), entity interests: the sale of an interest in a privately held entity is exempt “only to the extent that any long-term capital gain or loss from such sale or exchange is directly attributable to the real estate owned directly by such entity.” The amount is the fair market value of that real estate less its basis, times the percentage of the interest you sold, and it “may not exceed the individual’s long-term capital gain.” Real estate not owned directly is excluded in terms (subsection (2)(b)(iii)).
• Subsection (3), retirement accounts: a 401(k), a traditional or Roth IRA and similar plans. A REIT or fund held inside a self-directed IRA is outside the tax.
• Subsection (6), depreciable property: property depreciable under IRC section 167(a)(1), or that qualifies for expensing under section 179. Goodwill and other intangibles amortized under section 197 do not qualify (WAC 458-20-301(4)(f)).

WAC 458-20-301, effective July 29, 2024, spells out the two terms. A privately held entity “means an entity that is not traded through public means. For example, a privately held entity does not include a corporation traded on a public exchange.” “Owned directly” means “the privately held entity in which the individual has an interest legally owns (holds legal title to) the real estate.”

The rule’s own examples show how narrow that is:

Vehicle by vehicle: what the text says

The table applies the statute and the rule to the vehicles this site covers. “Exempt” means the text and the Department’s examples point to the exemption; “Taxable” means they point to tax; “Depends” means the answer turns on facts we could not read from a public source. None of the “our reading” rows is a Department ruling: we found none for a REIT share or a Delaware statutory trust interest, and a Washington taxpayer can ask the Department for a binding ruling.

What the filings say about how the vehicles hold their real estate

The word that decides the non-traded REIT rows is “directly”, so we read how each filer describes its structure in its 2025 annual report.

• Blackstone Real Estate Income Trust (BREIT), Form 10-K filed February 27, 2026: “There is currently no established public market for the Registrant’s shares of common stock,” and “we own substantially all of our assets through BREIT OP,” a Delaware limited partnership. It also says it qualifies as a REIT. Our full analysis of the vehicle is in the BREIT performance page.
• Starwood Real Estate Income Trust (SREIT), Form 10-K filed March 20, 2026: “There is no public trading market for shares of our common stock;” and “Substantially all of our business is conducted through the Operating Partnership.” Since April 2024 it has also sold interests in Delaware statutory trusts to accredited investors (the “DST Program”). See our SREIT review.
• Fundrise Real Estate Interval Fund, Form N-CSR for 2025: the fund “has elected and has qualified to be taxed as a real estate investment trust”, not as a regulated investment company, does not intend to list its shares, and gains exposure to private real estate “through co-investment arrangements, joint ventures or wholly owned subsidiaries.” So an interval fund is not always a mutual-fund-style RIC; this one is a REIT, and the Washington result follows the REIT rows, not Example 14. Our interval fund comparison lists others.
• Prologis (PLD), Form 10-K filed February 13, 2026: its common stock is “listed on the New York Stock Exchange”. It is the exchange-traded example: not a privately held entity.
• Delaware statutory trust, IRS Revenue Ruling 2004-86: the trust is “classified as a trust for federal tax purposes”, and a person who owns an undivided fractional interest “is considered to own the trust assets attributable to that undivided fractional interest.” Washington’s statute separately treats an individual as a beneficial owner of what a grantor trust holds (RCW 82.87.040(4)(b)). Our DST guide covers the structure.

The filings establish the structure, not the tax result. That a REIT holds its assets through an operating partnership is a fact in each 10-K; that this leaves little or no exemption is the inference from RCW 82.87.050(2)(b)(iii) and Example 19.

Worked examples (our arithmetic)

All use the tax year 2025 deduction of $278,000 and the 2025 rates. They are illustrations of the statute, not returns.

Example A, real estate sold with stock gains. A single Washington filer sells investment real estate at a $10,000,000 gain and shares at a $1,500,000 long-term gain. The real estate is exempt (WAC Example 17). Washington capital gains after the deduction are $1,500,000 minus $278,000 = $1,222,000. Tax: 7% of $1,222,000 = $85,540, plus 2.9% of the $222,000 above $1,000,000 = $6,438, total $91,978.

Example B, non-traded REIT shares. The same filer instead sells non-traded REIT shares at a $400,000 long-term gain and, on the reading above, finds no directly owned real estate to exempt. Washington capital gains are $400,000 minus $278,000 = $122,000. Tax: 7% of $122,000 = $8,540. If the Department instead accepted an exemption for the REIT’s real estate, the figure would fall by the exempt share; no ruling shows that it would.

Example C, structure of a private LLC. Using the numbers in WAC Examples 19 and 20 (gain $9,000,000) at the 2025 rates. With $3,000,000 exempt, $6,000,000 less $278,000 = $5,722,000: 7% = $400,540, plus 2.9% of $4,722,000 = $136,938, tax $537,478. With $6,000,000 exempt, $3,000,000 less $278,000 = $2,722,000: 7% = $190,540, plus 2.9% of $1,722,000 = $49,938, tax $240,478. The difference is $297,000 (the rule’s examples predate the 2.9% tier, so the dollars are ours).

Where Washington departs from the federal return

• Opportunity zones. Washington’s starting number is the federal net long-term capital gain “determined as if” sections 1400Z-1 and 1400Z-2 “did not exist” (RCW 82.87.020(3)). WAC Example 6 has an owner who sold stock in 2023 and deferred the gain into a qualified opportunity fund; the Washington base includes the $1,300,000 in 2023. The Department’s FAQ says the same. See our opportunity zone page.
• 1031 exchanges. The list of federal sections Washington ignores does not include section 1031. Real estate sold by deed is exempt in any case, but a cash payment or a sale of a fund interest is a separate question.
• Losses. A short-term loss cannot offset long-term gain (Department FAQ). A long-term loss on a sale that is itself exempt is added back, not used (RCW 82.87.020(1)(a)).
• Another state’s tax. A credit is allowed for income or excise tax paid to another state on gain from assets in that state, limited to the lesser of the Washington tax on those assets or the tax paid, nonrefundable, with no carryback or carryforward (RCW 82.87.100(2)).
• K-1 without basis. When a K-1 shows no basis, the Department says to enter the total long-term gain as proceeds and leave the cost or basis field blank. See our K-1 boxes explained and the K-1 versus 1099-DIV census.

Filing and payment dates

The return is due on the same day as the federal return. An extension requires a federal extension and a request through My DOR on or before April 15, and does not extend the payment. A taxpayer who has paid less than 80% of the tax due faces the substantial underpayment penalty. For tax year 2026, the Department allows prepayment “beginning Oct. 15, 2026, for returns due on April 15th, 2027”, and a prepayment cannot be deducted in computing the federal gain. You are not required to file if your net long-term gains are exempt or below the standard deduction.

For the Department’s volume: its page reports that 6,726 returns had been filed for tax year 2025 with 4,468 extensions granted, and that the extended deadline for that year was October 15, 2026.

What a reader can do with this

These are questions the rule raises, not recommendations for any one return.

• Split the gain by transaction. The Department says exemptions “are based on transactions”, so a rental sale and a REIT redemption in the same year are treated separately.
• Ask the sponsor in writing which entity holds title. For a K-1 LLC, the question is whether the entity you own an interest in holds the property itself or through subsidiaries; Example 19 turns on exactly that.
• Ask for the fund’s tax classification. A fund that is a REIT, one that is a regulated investment company and one that is a partnership land in different rows of the table.
• Check the year of a move. Gain on intangibles is allocated by domicile at the time of the sale, so the date you change domicile matters, and the credit for tax paid to another state is limited.
• Keep the 1099-DIV box detail. Capital gain distributions and retained gain (Form 2439) are the pieces most likely to reach the Washington return from a REIT or fund.
• Consider a binding ruling. The Department’s page points taxpayers with questions to a request for a tax ruling.

This is analysis of public documents, not investment, legal or tax advice. The rows marked “our reading” are inferences from the text, not Department positions. A tax adviser with your returns and the fund documents can say how the exemption applies to yours.

FAQ

Sources, read and saved on October 22, 2026: chapter 82.87 RCW, sections 82.87.020, .040, .050, .060, .100 and .150 (app.leg.wa.gov); WAC 458-20-301, effective July 29, 2024 (app.leg.wa.gov); Washington Department of Revenue pages: Capital gains tax, Frequently asked questions about Washington’s capital gains tax, Do you owe capital gains tax?, special notice “New tiered rates” (June 30, 2025), special notice “Prepayment of capital gains tax” (August 3, 2026), and Capital Gains Tax - Tax Year 2025 Initial Collections (dor.wa.gov); IRS Revenue Ruling 2004-86 (irs.gov/pub/irs-drop/rr-04-86.pdf); Blackstone Real Estate Income Trust Form 10-K for 2025 (accession 0001662972-26-000032); Starwood Real Estate Income Trust Form 10-K for 2025 (0001193125-26-117060); Fundrise Real Estate Interval Fund Form N-CSR for 2025 (0001777677-26-000017); Prologis Form 10-K for 2025 (0001193125-26-051453). Calculations marked “our arithmetic” are ours.