@alleychow wrote:
Thank you very much for your excellent answer, especially the details regarding the timing of filing. So if I pay the WA state capital gains excise tax today through the Washington state portal, am I allowed to make the adjustment on my 2024 federal tax return which I have yet to file?
Based on the article, no. That's the timing problem the article discusses. If you pay the excise tax in 2025, you can't use it to adjust the sales proceeds that you received in 2024. You would report the sale on your 2024 using the full sales proceeds. Then on your 2025 federal tax return, you can take a capital loss. Essentially, you would report the sale of the property again, using a purchase price equal to the amount of the excise tax you paid and a selling price of zero, to create the loss. Because capital losses are limited, it may take a few years to realize the full benefit, unless you have other capital gains.
