Good news. And bad news. There is a new REET in town. by Jen Hudson

I’ll take “What is REET” for $400 please.

The REET is the Real Estate Excise Tax.  Think of it like sales tax when you sell your property.

Washington State has (2019 and prior) a flat excise tax of 1.28% across the state.  In addition to this 1.28%, individual jurisdictions such as cities or counties can levy an extra 0.50%, for a total of $1.78%.

For example, almost everywhere in Snohomish, King, Skagit, or Whatcom county is a tax of 1.78% total.  The exceptions here are Darrington and Skykomish, at a total of 1.53% instead.  There are others throughout the state, those are just the ones we work most frequently with.

That means, if you want to sell your home, in most areas you will pay a total excise tax of 1.78% at closing to the Department of Revenue.

Right now, it does not matter if your property is worth $300,000 or $3,000,000, your excise tax is the same rate at 1.78%.

Is the REET going to change?

Yes.  Starting January 1, 2020, the real estate excise tax rate across Washington State is going to change.

The good news? 

Home and property owners with sales prices at $1,500,000 or below will see either no change or a reduction in this rate.  Properties valued below $500,000 will see a reduction of 14% from 1.28% down to 1.10%.  The properties between $500,000 and $1,500,000 will remain the same.

The bad news?

Property owners with sales prices above $1.5mil will see their taxes more than double, with rates at 2.75% for $1,500,000 – $3,000,000 and 3.0% for $3,000,000 and above.

How does the new REET work?

This new REET system is going to be a graduated or tiered structure.  While the lower end of the market will benefit from these new rates, the middle stays the same, and upper end will owe more in taxes at closing.

New REET Rates for Washington State (State only, local jurisdiction is extra)

REET Price Example – $350,000:

For example, if you sold a property for $350,000 in Everett, you would pay $6,230 today (1.28% plus 0.50% = 1.78%).

If you sold that same property in 2020, your tax is now $5,600 (1.10% plus 0.50% = 1.60%), which is a $630 savings.

REET Price Example – $2,500,000:

The other end of the spectrum looks a little different.  Let’s say your property is worth $2.5mil.  Today, your tax is $44,500 (1.28% plus 0.50% = 1.78%).

In 2020, those same taxes will increase to $58,300 ($8,000 + $17,800 + $32,500), which is an additional $13,800 cost.

1st tier $500,000 of sales price x (1.10% + 0.5% = 1.6%)  = $8,000

2nd tier $1,000,000 of sales price  from $500k-$1.5mil x (1.28% + 0.5% = 1.78%) = $17,800

3rd tier $1,000,000 of sales price from $1.5mil-$2.5mil x (2.75% + 0.5% = 3.25%) = $32,500

Is there anything else I should know?

Keep in mind these rate changes are to the state portion of the real estate excise tax, not the local city or county jurisdiction.

If you live in a location such as Everett or Arlington where you currently pay 1.28% to the state plus 0.50% to the local jurisdiction, then you will still pay your state fee between 1.10-3.0% (in the chart above) plus the extra local percentage on top of that.

One more thing. 

While a 1031 tax deferred exchange is usually a great weapon to combat your tax bill, unfortunately it won’t work here.  In Washington State, the excise tax is due on the sale of your property to the state and local jurisdiction, and is not one of the taxes that can be deferred later, such as capital gains or the recapture tax on depreciation.

As Sun Tzu says “Strategy without Tactics is the slowest route to victory.  Tactics without Strategy is the noise before defeat.”  We excel at helping you plan and prepare, to make sure you get to the finish line in the best way possible.

For more information about local tax rates or to talk strategy, give us a call at (206) 466-4020 or send an email to info@hudsoncreg.com.

Cheers!

Jen Hudson & Duane Petzoldt

First Time Real Estate Investor (Part 1)

Now is the perfect time to begin investing in real estate.  Many buyers are sitting on the fence waiting for things to change and talk about how our market is “down.”  In reality, you now have more negotiating power than ever.

If you are a new investor starting out, I recommend starting small.

Duplexes and Mother-in-Law apartments are a great beginning.  They allow you to live on one side and keep an eye on the premises while generating income at the same time.  Of course, there are drawbacks to this set-up.  Continue reading “First Time Real Estate Investor (Part 1)”

First Time Real Estate Investor: Good Rental (Part 2)

So, you’ve decided it’s time to purchase an investment property.  How do you know if it’s a good rental?

There are a couple basic items to consider when looking at an investment property.  Just like in real estate, rentals are about location, location, location!

If you are considering a full-time rental property, is it close to schools, shopping or allow for easy commuting?  If you are looking at a vacation rental, what is the draw for that area and why do people visit?  Is there a golf course, beach or another attraction that brings people to the neighborhood consistently?  Even a retirement community?  Find out what it is and utilize that. Continue reading “First Time Real Estate Investor: Good Rental (Part 2)”

First Time Real Estate Investors: Long Term (Part 3)

As with any investment, part of planning is knowing how long you are going to keep it.  If you plan on keeping a property for 20 years, chances are you’re going to have to replace the roof, water heater and other items with a limited lifespan.  If you plan on keeping the property for only 5 years, then you’ll want to avoid those costly items if possible.  Or, at least take them into account with your costs and purchase price. Continue reading “First Time Real Estate Investors: Long Term (Part 3)”

First Time Real Estate Investors: Value (Part 4)

If you are just tuning in and are interested in investment properties, take a minute to browse through my previous articles before you get started. Part 1 – Tips for First Time InvestorsPart 2 – Is it a Good Rental?  Part 3 – How Long is Your Horizon?

So, you’ve found a couple properties that might be a good investment.  How do you know if they are worth it?  First, when looking at a potential investment property, use actual numbers, not future projected numbers. Continue reading “First Time Real Estate Investors: Value (Part 4)”

First Time Real Estate Investors: Final Steps (Part 5)

To wrap up this series on investment properties, let’s take a look at some final pieces to keep your investment an investment.  If you haven’t read previous articles, start here for some worth while information on how to look at investing.

Investment-Income Producing Properties are a wonderful thing to have.  While everyone else is waiting for the market to change, this is the ideal time to negotiate some fabulous deals.  But it takes more than just purchasing a property to make it worth your while. Continue reading “First Time Real Estate Investors: Final Steps (Part 5)”