Washington Millionaires Tax 2026: 9.9% Over $1 Million From 2028 After I-645 Repeal Fails (58% No)

This page is for a Washington resident, or someone planning a move to or from the state, who earns rent, K-1 income or sale gains from real estate and wants to know which dollars the new tax reaches. It follows the enacted text. It does not cover the state’s existing capital gains tax in full, which is in our Washington capital gains tax page, or the estate tax, which is in our Washington estate tax page.

What happened, in dates

The act’s effective date is June 11, 2026, except Sections 901, 909 through 911, 1001 and 1002, which take effect January 1, 2029, and Sections 1101 through 1104, which take effect July 1, 2026. The sales tax and business tax relief it funds (Sections 903 to 911) is therefore a separate clock from the income tax.

The tax in six numbers

“Washington taxable income” starts from federal adjusted gross income, is modified into “Washington base income” by Sections 302 to 308 and 401 to 407, and is then reduced by the deductions in Sections 309 to 314 (Section 101(11) and (12)). A resident is taxed on all income; a nonresident only on income from sources in Washington (Section 401). The legislature’s own intent clause says the tax should reach “the wealthiest one-half of one percent of the households in this state.”

What the base takes out and puts back

Section 302 is the rule that matters most to a real estate investor:

• Out: “the taxpayer must deduct from the taxpayer’s federal adjusted gross income any long-term capital gains that have been included in computing federal adjusted gross income” (Section 302(1)), and add back long-term capital losses (302(2)).
• Back in, only for taxed gains: the taxpayer adds the “Washington capital gains subject to tax under chapter 82.87 RCW,” plus the capital gains standard deduction (302(3)). Then the key sentence: a taxpayer “must not include long-term capital gains or long-term capital losses, from the sales or exchanges exempt under RCW 82.87.050, in the computation of their Washington base income.”
• The exemption list: RCW 82.87.050(1) exempts “All real estate transferred by deed, real estate contract, judgment, or other lawful instruments that transfer title to real property”, subsection (2) exempts an interest in a privately held entity only to the extent the gain is directly attributable to real estate the entity owns directly, and subsection (3) exempts retirement accounts. Our capital gains page walks through those clauses.

Read together, our reading is that a long-term gain on a rental sold by deed is outside the millionaires tax, and so is the exempt part of a fund interest sale. The act does not use the word “exempt” for rent or for ordinary income. Section 401(2)(e) lists “Rents, short-term gains, and other amounts attributable to the ownership or disposition of any interest in real or tangible personal property in this state” as Washington-source income for nonresidents, and Section 405(6) and (7) allocate net rents and short-term gains on Washington real property to the state. Section 302 touches only long-term gains, so those items stay in federal adjusted gross income and in the base.

“Our reading” means an inference from the enrolled text. We found no Department of Revenue rule or guidance adopted under Section 710 on any row.

The four credits, and why none carries over

Each credit is nonrefundable and “may not be carried forward or backward.” Section 304 also adds back state taxes on net income deducted federally, and Section 305 limits net operating loss carryovers to 80 percent of the loss for losses apportioned to Washington after January 1, 2028.

Worked examples (our arithmetic)

These use the enacted rate and the $1,000,000 deduction. For the capital gains credit they use the 2025 capital gains deduction of $278,000 and 2025 rates (7% to $1,000,000, 9.9% above), because the 2028 figures are not set; they ignore charitable gifts and add-backs. They illustrate the text and are not a return.

Example A, a rental sale on top of ordinary income. A married couple has $900,000 of ordinary K-1 income and $400,000 of net rent, and sells a rental by deed for a $3,000,000 long-term gain. Federal adjusted gross income is $4,300,000. Section 302 removes the $3,000,000. Base: $1,300,000. After the $1,000,000 deduction: $300,000. Tax: 9.9% of $300,000 = $29,700. If the same $3,000,000 were a short-term gain, the base would be $4,300,000, taxable income $3,300,000 and tax $326,700.

Example B, the same couple also sells stock. They add a $1,500,000 long-term stock gain. Section 302(3) adds it back, so the base is $2,800,000 and taxable income $1,800,000: tax before credits $178,200. The capital gains tax at 2025-style numbers is 7% of ($1,500,000 − $278,000) = $85,540, plus 2.9% of the $222,000 above $1,000,000 = $6,438, total $91,978. The Section 205 credit leaves $86,222. Compared with Example A, the stock gain adds $56,522 of net tax, because the credit absorbs most of the capital gains tax already paid.

Example C, a pass-through election. A resident owner’s only income is a $2,000,000 distributive share. Without an election the owner’s tax is 9.9% of ($2,000,000 − $1,000,000) = $99,000. If the entity elects and pays 9.9% on the full $2,000,000 because the deduction is not applied at entity level, the entity tax is $198,000, the Section 206 credit is capped at the owner’s $99,000, and $99,000 of credit is unused and lost. If the Department reads Section 502(3)(b) to apply the deduction inside the entity, the entity tax is $99,000 and the credit covers the whole bill. The text does not say which; this is the open question in the election.

The pass-through entity election

Section 502 imposes “9.90 percent of the taxable income of an electing entity” beginning January 1, 2028. Mechanics, from the text:

• A partnership, LLC or S corporation files the election with the Department “no later than June 15th of the taxable year”, so the first election window closes June 15, 2028.
• “The election is made annually and is irrevocable for the taxable year once filed.” It may exclude owners who choose not to participate, identified at the time of election (502(2)(d)).
• Taxable income of the entity is the full distributive share of participating resident owners “regardless of source”, plus the Washington-source share of participating nonresident owners (502(3)(a)).
• The entity applies “all state specific additions, subtractions, and modifications that would apply to the owners individually,” and treats guaranteed payments, separately stated items and investment income as the owners would (502(3)(b) and (c)).
• Owners add the entity tax back to their base to the extent they deducted it federally (Section 310) and claim the Section 206 credit. Estimated payments by the entity start July 1, 2029.

For a real estate syndication or fund taxed as a partnership with Washington resident investors, the election turns the entity into the payer. The credit limit in Example C is the cost of getting the deduction question wrong. Whether the federal return deducts the entity tax is a federal question we have not covered here.

Filing, payment and litigation

Returns are due the day the federal return is due, with a copy of the federal return and information returns attached, and “regardless of any filing extension” the tax must be paid by that date (Section 702(1) to (3)). The Department may require a Washington K-1 (702(2)(d)). Individuals not owing the tax need not file.

Three litigation clauses decide how settled this is:

• Section 1202: “If a court of final jurisdiction invalidates section 201 of this act, sections 1 through 1003 and 1201 through 1209 of this act are null and void in its entirety.”
• Section 1201 amends the 2024 initiative that banned personal income taxes (Initiative Measure No. 2111): the ban does not apply to this tax “so long as the standard deduction is at least $1,000,000 for a household.” The campaign over whether the threshold could be lowered ran through the I-645 debate; Governor Ferguson said on November 4, 2026 he would veto any attempt to lower it.
• Section 1209 states the legislature’s intent that the Department spend appropriated amounts to implement the act “regardless of litigation.”

The Supreme Court’s May 2026 order, as BDO reports it, said the bill “undisputedly generates revenue for the state’s existing institutions” and so is not subject to referendum; the petition concerned only that question. Petter v. Washington argues income is property and so must be taxed uniformly at no more than 1%, relying on Culliton v. Chase; the state argues income is not property. MyNorthwest reported it is expected to reach the Supreme Court, likely after the election. We have no ruling to report.

What a reader can do with this

These are questions the text raises, not recommendations.

• Sort next year’s income by type. The act treats a long-term gain on a property sold by deed, rent, a short-term gain and ordinary K-1 income differently. Which bucket a dollar falls in decides whether the $1,000,000 deduction is used up.
• Check the holding period before a sale. The line between a short-term and long-term gain is the line between inside and outside the base in Example A.
• Ask each K-1 sponsor how the entity will treat the election. The June 15, 2028 date is the first decision point, and the open deduction question in Example C affects whether electing helps.
• Track the credits. Nothing carries over, so a capital gains tax credit larger than the millionaires tax due in a year is lost.
• If you may move, count days and homes. A resident is domiciled in the state, or keeps a place of abode and is present more than 183 days (Section 101(8)), and “day” means any part of a calendar day. Our capital gains page covers the domicile test for that tax, and our estimated tax page covers quarterly payments on K-1 income.
• Watch the court case and the rules. The Department’s rules under Section 710 and Petter v. Washington can each change the answers above.

This is analysis of public documents, not investment, legal or tax advice. The rows marked “our reading” are inferences from the enrolled text, not Department of Revenue positions. A tax adviser who sees your returns and your partnership agreements can say how the act applies to you.

FAQ

Sources, read and saved on November 5, 2026: Engrossed Substitute Senate Bill 6346, Chapter 238, Laws of 2026, session law as enrolled (lawfilesext.leg.wa.gov), including the certification of enrollment; RCW 82.87.020, .040, .050 and .060 (app.leg.wa.gov); BDO, “Washington’s Millionaires’ Tax Exempt From Referendum,” May 15, 2026; MyNorthwest, “Updated results show Washington voters continue to reject millionaires’ tax repeal,” November 4, 2026; KNKX, “Latest results for the 3 initiatives on every Washington voter’s ballot,” November 2026. Vote counts are unofficial and news reports are secondary sources. Calculations marked “our arithmetic” are ours.