1031 Exchange & DST Investing in Washington
Washington has no personal income tax, and its 7% capital-gains excise tax specifically exempts real estate, so a property sale is a federal-only event that a 1031 exchange defers. Seattle and the Puget Sound region are among the deepest industrial, multifamily, and life-science markets in the West.
State tax treatment of a 1031 exchange
Washington imposes no personal income tax. Its 7% capital-gains excise tax applies only to certain gains from the sale of financial assets such as stocks and bonds and specifically exempts real estate, so gains from selling real property are not subject to any Washington capital-gains tax. The only capital-gains exposure on a real estate sale is federal, and a properly structured Section 1031 exchange defers that federal gain.
Because real estate gains are not taxed at the state level, Washington imposes no nonresident seller withholding on real estate transactions and has no clawback or continued-reporting requirement for gain deferred into out-of-state replacement property.
Market snapshot
Seattle anchors Washington's investment market, with Tacoma, Bellevue, and Spokane forming active secondary metros. Industrial and logistics, multifamily, and life-science and office space lead demand, driven by the region's major technology, aerospace, and healthcare employers.
The Puget Sound economy, anchored by global technology and cloud-computing firms, supports high wages and durable housing demand, while the industrial corridor benefits from the region's ports and distribution networks. These fundamentals keep Washington a leading target for 1031 replacement capital.
Why 1031 & DST investors look here
- No income tax and real estate exempt from the capital-gains excise tax
- Deep Puget Sound industrial, multifamily, and life-science markets
- High-wage tech and aerospace economy supporting housing demand
Replacement-property options
Replacement property need not be located in Washington — like-kind real estate is nationwide. Washington owners use DSTs, 721 UPREIT contributions, and Opportunity Zone investments to exchange into passive, professionally managed real estate, whether keeping capital in the Puget Sound region or diversifying across other markets and asset classes.
Frequently asked questions
Does Washington tax a 1031 exchange?
Washington has no income tax and its capital-gains excise tax exempts real estate, so a property sale faces no state tax; only federal capital-gains tax applies, and a valid 1031 exchange defers it.
Can I exchange Washington property for out-of-state DSTs?
Yes. Like-kind property can be located anywhere in the U.S., so Washington owners can exchange into DSTs and other replacement property in any market.
Does Washington's 7% capital-gains tax apply to real estate?
No. Washington's capital-gains excise tax specifically exempts gains from the sale of real estate, so it does not apply to real property transactions.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
State tax treatment is general and changes frequently; this page is educational and is not tax, legal, or investment advice. Confirm current state and local rules with your own CPA and attorney. Securities offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.