Capital gains tax is a tax on income received from the sale of an asset—such as a business, real estate, your home, stocks, bonds, coin collections, and jewelry. Capital gains tax is paid on the financial gain between the amount you paid for (or invested to build) the asset, and the amount for which it is sold.

The rate (percentage) paid as capital gains tax has traditionally been lower than the rate (percentage) paid on income tax. And the Internal Revenue Service (IRS) has traditionally taxed long term gains differently than short term gains—with the distinction based on how long the taxpayer owned or held the asset.

In Washington State, as of the knowledge cutoff in 2023, there is a state capital gains tax that applies to certain sales of long-term capital assets. The tax is levied on the sale of assets such as stocks, bonds, and business interests, but there are exemptions, including the sale of real estate, retirement accounts, and certain other assets. The state capital gains tax is separate from federal capital gains taxes, which are administered by the Internal Revenue Service (IRS). The federal capital gains tax rates vary depending on the taxpayer's income level and whether the asset was held for more than a year (long-term) or less than a year (short-term). Long-term federal capital gains tax rates are generally lower than short-term rates and ordinary income tax rates. Taxpayers in Washington State must consider both federal and state capital gains tax implications when selling assets.