New tax on real estate sales over $3M moves ahead in Legislature

A bill that would create a new tax on the sale of expensive real estate to pay for affordable housing is one step closer to becoming law in the Washington state Legislature.

The House Finance Committee on Friday approved House Bill 2276 on a 7 to 6 vote. Two Democrats, Reps. Larry Springer and Amy Walen, both of Kirkland, joined Republicans in voting against it.

The proposal, as passed Friday, would add a tax to the sale of real estate over about $3 million, beginning in 2026 – a year later than the original version of the bill.

Revenue from that tax, estimated at more than $130 million every year, would provide a steady funding stream for affordable housing. The proposal also cuts the tax rate for homes that sell for less than $750,000.

“As we move forward on this journey for affordable housing for all communities, it’s very important that we find progressive ways to fill those buckets,” bill sponsor Rep. April Berg, D-Mill Creek, said Friday. “This bill is one attempt to do that.”

Real estate excise taxes are levied on the sale of most properties in Washington. Currently, the lowest rate – 1.1% – is levied on all properties sold at $525,000 or less. Under Berg’s proposal, that lowest tier would expand to include all properties sold at $750,000 or less, leaving most people selling property in Washington with no change or a decrease in their tax rate.

Berg’s bill would also create an additional tax on the sale of all properties sold for more than $3,025,000, which are currently taxed at a rate of 3%. The new bill would add a 1% real estate transfer tax on any portion of the price over $3,025,000.

New revenue from this tax is split among affordable housing programs, including the state Housing Trust Fund, Apple Health and Homes, housing for people with intellectual and developmental disabilities, and maintenance costs for operating low-income housing.

The proposal has support among Democrats and housing advocates who say an ongoing funding source is necessary to provide certainty to affordable housing developers.

But Republicans, builders and business groups argue that raising the tax on the sale of expensive properties would only increase the cost of housing.

During Friday’s Finance Committee hearing, Rep. Ed Orcutt, R-Kalama, said that the new tax would apply to apartments and other multi-family housing, with the extra expense passed to renters.

“I’m sorry but this does drive up the cost of housing,” Orcutt said.

Orcutt proposed an amendment that would have removed the new 1% transfer tax but set aside some revenue from the current real estate excise tax for housing for people with developmental disabilities. Funding this type of housing is very important, Orcutt said, but it should be done with existing revenue.

Another amendment, proposed by Rep. Cyndy Jacobsen, R-Puyallup, would have exempted the sale of all multi-family housing from the transfer tax. Jacobsen called the tax regressive because of how it could affect renters more than single-family homeowners.

Both amendments failed.

Berg noted that nonprofit and low-income multi-family housing is already exempt from the real estate excise tax and will remain exempt under the legislation.

A similar proposal failed to make it through the Legislature last year in part because it also allowed local governments to raise their real estate excise tax to help pay for affordable housing. This bill removed the local option, but the newest version does require the Department of Revenue to study the requirements needed to implement a local option for a graduated real estate excise tax and submit that report to the Legislature by January 2025.

The bill’s next stop could be a vote in the full House, but with less than two weeks left in this year’s legislative session, getting the bill through both the House and the Senate could prove difficult.

House Speaker Laurie Jinkins, D-Tacoma, told reporters Wednesday she did not know how likely the bill was to make it through this year but that there are “robust conversations” happening about it.