Washington has passed HB 1376, a technical but significant update to the state’s capital gains tax procedures. This bill provides a new timing mechanism for taxpayers to better align their state tax payments with federal tax planning.

Key Provisions of HB 1376

• Early Payment Option: Taxpayers may now submit their Washington capital gains tax payment beginning six months before the filing due date for that taxable year.
• Federal Deduction Alignment: The primary goal is to allow taxpayers to pay the state tax in the same calendar year the gain is realized. This may enable certain taxpayers to claim the state tax as a federal deduction in the year of the sale, rather than waiting until the following year.
• Interest Protection: To prevent “interest arbitrage,” the state will not pay interest on any overpayments (remittances) for the period prior to the original due date.

Who Should Take Action?

This change is most relevant for high-net-worth individuals or business owners anticipating a significant capital gains event (e.g., the sale of a business or large stock position). While the bill does not change the tax rate or who owes the tax, the ability to control the timing of the payment can be a valuable tool for year-end federal tax planning.