Real Estate Excise Tax for Washington State

[lairdj3]

Hello, 

I sold my home (primary residence) in Washington State and paid a Real Estate Excise Tax to both the State and Local entities. This number is more than double my property taxes paid in 2020. Can I deduct this? 

[AmyC · Accepted solution]

No, according to the IRS in Income & Expenses 6 | Internal Revenue Service:

The federal government charges excise taxes on the sale or use of a wide variety of products. An excise tax isn't deductible if it's for a personal expense. You can deduct as a business expense excise taxes that are ordinary and necessary expenses of carrying on your trade or business.

Excise tax paid to your state and local for sale of home would not be business related so not deductible.

[lairdj3]

Thanks Amy. I find it rather odd that you can deduct sales tax for all items except for the sales (excise) tax on your home sale. Oh well. 

[ToddL99]

The reason you can't claim a sales tax deduction for your home's excise tax is that an excise tax is not a sales tax. There is a provision in the federal tax code that allows you to deduct sales taxes, but none for excise taxes.

Excise taxes differ from sales taxes in one important way.

Excise taxes are legislated on specific goods. The most common examples are luxury goods (e.g. yachts, airplanes) or those that have been linked to specific health issues like cigarettes, alcohol and tanning salons. They are often flat taxes, but can be based on the purchase price or value.

Sales taxes apply to just about everything you buy (usually with specific exceptions such as unprepared food and clothing). 

[JTS79]

Is the WA State REET a considered a “selling expense” for establishing capital gains on the sale of a home?

[Vanessa A]

No, it would not be considered a selling expense.  Selling expenses include things like brokerage fees and commissions, not taxes paid. 

[calflat]

Would the WA REET be considered a transfer tax?  In IRS Pub 530, regarding non-deductible real estate taxes, it does state this:

"Transfer taxes (or stamp taxes). You can't deduct transfer taxes and similar taxes and charges on the sale of a personal home. If you are the buyer and you pay them, include them in the cost basis of the property. If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale."

I would think that it is a transfer tax as it come into play for any sale or transfer of controlling interest of real estate?

[GeorgeM777]

Yes, it appears that the WA real estate excise tax is a tax on the sale/transfer of property.  According to the WA Department of Revenue, the WA (REET) is a tax on the sale of real property.  All sales of real property in the state are subject to REET unless a specific exemption is claimed.  The seller of the property typically pays the real estate excise tax, although the buyer is liable for the tax if it is not paid.  Unpaid tax can become a lien on the transferred property.

The WA DOR defines the term sale as follows:

" A sale means, any conveyance, grant, assignment, quitclaim, or transfer of the ownership of or title to real property,..." (underline and bolded text added)

Here is a link to the WA DOR webpage from which the above quoted information was obtained.

WA Department of Revenue

@calflat

[LA2025]

Thank you.