1031 Exchange in Washington

By Skyline Capital Investments · Updated October 26, 2026 · 7 min read

Does Washington recognize 1031 exchanges?

Yes, in the sense that matters: a Washington property qualifies for a federal 1031 exchange like property anywhere else, and the state adds no income tax on top. Washington has no personal income tax, and its capital gains tax exempts real estate, so there is no state gain to defer and no state conformity rule to meet.

That makes a Washington exchange a federal decision. You exchange to defer federal capital gains tax, the 25% federal rate on depreciation and the 3.8% net investment income tax. What the exchange does not touch is the real estate excise tax (REET), a transfer tax on the price that Washington charges on the sale whether or not you exchange.

The federal rules a Washington exchange follows

The federal deadlines and tests are the same in Washington as everywhere. You must identify replacement property in writing within 45 days of selling, close on it within 180 days (or by your tax return due date, if earlier), use a qualified intermediary so you never receive the sale proceeds, and trade real property held for investment or business use for other such property.

To defer all of the federal tax, buy a replacement worth at least as much as the property you sold and reinvest all of the net cash. Our 1031 exchange rules page covers identification, boot and related parties in detail, and the 1031 exchange guide explains the whole process from listing to closing.

REET in a Washington 1031 exchange

REET is due on the sale of your relinquished property even when it is part of an exchange. The seller normally pays it through escrow on the date of sale. For 2026 sales the state rate is 1.1% on the first $525,000 of the price, 1.28% to $1,525,000, 2.75% to $3,025,000 and 3% above that, plus a local rate. For sales from January 1, 2027, those bands start at $551,000, $1,551,000 and $3,051,000.

WAC 458-61A-213 explains what happens when an intermediary actually takes title. The intermediary’s purchase of the property is subject to REET. Its later transfer to the final buyer, or to you on the replacement side, is taxable too, unless three conditions are met: the tax was properly paid on the first transfer, the intermediary signs a supplemental statement attached to the affidavit saying it took title only to carry out a section 1031 exchange, and the money it used came from the grantee or from the sale of the grantee’s own property.

Meet those conditions and REET is paid once per conveyance, not twice. If both deeds are recorded at the same time, the intermediary can choose which transfer bears the tax. Many exchanges avoid the question by deeding directly from seller to buyer, with the intermediary taking an assignment of the contract instead of title.

Withholding at closing and how an exchange affects it

Washington has no income tax withholding on real estate sales, so there is nothing for an exchange to reduce or waive at closing. Residents and nonresidents alike pay only REET, which is due on the date of sale regardless of when the deed is recorded, with penalties and interest after one month.

This is simpler than in states that collect estimated tax at recording. A seller from California or Arizona who sells a Washington building in an exchange files the REET affidavit, pays the excise tax and sends the net proceeds to the intermediary. Federal FIRPTA withholding can still apply if the seller is a foreign person.

Is there a Washington 1031 clawback?

No. Washington has no clawback rule, because it never taxed the gain in the first place. You can exchange a Seattle building into property in Idaho, Texas or anywhere else, and Washington will not track the deferred gain or ask for a later filing.

The other direction is different. California, Massachusetts, Montana and Oregon track gain from property in their state that is exchanged into out-of-state property, and they can tax it when the replacement is finally sold. A California owner who trades into a Washington building still has California filing duties on the deferred California gain, even though Washington itself never taxes it.

Washington’s qualified intermediary law

Yes, Washington regulates intermediaries. Chapter 19.310 RCW, the exchange facilitator law, sets duties for anyone who holds exchange funds for a Washington exchange. It is one of nine states with a qualified intermediary law, along with California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon and Virginia.

The law gives clients real protections, and it is worth asking an intermediary to show its compliance before you sign the exchange agreement, which the statute requires it to do.

• A fidelity bond of at least $1,000,000, or all exchange funds held in a qualified escrow account or qualified trust that needs both the facilitator and the client to authenticate any withdrawal (RCW 19.310.040).
• Errors and omissions insurance of at least $250,000, or a $250,000 deposit in its place (RCW 19.310.060).
• Written notice to clients of a change in control of the facilitator (RCW 19.310.030).
• Exchange funds invested under a prudent investor standard, with written notice of where client funds are deposited (RCW 19.310.080 and .110).
• Violations can be pursued in civil suits and under the Consumer Protection Act (RCW 19.310.150 and .160).

Questions to ask a Washington intermediary

Because chapter 19.310 RCW spells out what a facilitator must carry, you can check an intermediary against the statute instead of relying on its marketing. Ask which option it uses for client funds: the $1,000,000 fidelity bond, or a qualified escrow or trust where you must also approve each withdrawal. The second option gives you direct control over the money during the 180 days.

Ask for the evidence of its bond or escrow arrangement and its $250,000 errors and omissions coverage before you sign, since the law requires the facilitator to provide it. Confirm where your funds will be deposited and that you will get written notice of the account. Finally, ask your escrow officer to send the sale proceeds straight to the intermediary’s account, so the money never passes through your hands.

Common 1031 exchange paths in Washington

Most Washington exchanges follow one of a few patterns. Each has a different state tax result, even though the federal rules are identical.

• Washington to Washington: federal deferral only. REET is paid on your sale, and the seller of your replacement normally pays REET on that one.
• Washington to a state with no income tax, such as Texas or Florida: the gain stays outside any state income tax for now, but a later sale is taxed under the new state’s rules at that time.
• Washington to a state with an income tax, such as Idaho or Oregon: Washington drops out, and the new state may tax the whole gain, including the part deferred from Washington, when you sell the replacement.
• California or Oregon into Washington: the home state’s clawback still applies to the deferred gain, but the Washington property adds no state income tax.
• Exchanges involving entity interests or DSTs: check REET’s controlling interest rule, which taxes a transfer of 50% or more of an entity that owns Washington real estate, with a 36-month lookback.

Worked example: a $2 million exchange from Tacoma to Spokane

A couple sells a 15-unit building in Tacoma for $2,000,000 in 2026. They bought it in 2012 for $900,000 and have claimed $350,000 of depreciation. Closing costs are $70,000, and the state REET is $31,637.50, plus the local rate for Tacoma. Their other income is high enough that the gain lands in the 20% federal bracket.

Without an exchange, the federal tax is about $338,410. Washington adds no capital gains tax. With a full exchange into a $2,400,000 building in Spokane, reinvesting all $1,898,362.50 of net proceeds, the entire $338,410 is deferred. The REET on the Tacoma sale is still paid at closing, because the exchange does not change it.

On the purchase side, the Spokane seller normally pays REET on the $2,400,000 sale: $42,637.50 at 2026 state rates, or $42,208.50 if it closes in 2027. If the couple instead kept $150,000 of cash, that amount would be boot and roughly $150,000 of gain would be taxable in 2026.

Selling a Washington building into an exchange with Skyline

Skyline buys apartment buildings with five or more units in Washington and can be the buyer on the relinquished side of your exchange. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you need more time to find a replacement before the 45-day clock starts, we can set the closing date around your search, and we coordinate the REET affidavit and the intermediary assignment with escrow.