Taxes When Selling a Home in Bellevue, WA: What You Need to Know Before You Close

Selling a Bellevue home typically involves three potential tax obligations: federal capital gains tax, Washington State's Real Estate Excise Tax (REET), and — in limited situations — depreciation recapture if the property was ever used as a rental. Most primary-residence sellers qualify for a significant federal exclusion that eliminates or reduces their capital gains bill entirely. Understanding all three lets you plan, not scramble.

The IRS taxes profit on a home sale, not the sale price itself. Your profit is the difference between your adjusted basis — what you paid plus qualifying improvements — and your net proceeds after selling costs. The rate depends on how long you owned the property. Hold the home for more than one year and you qualify for long-term capital gains rates, which the IRS confirms are lower than ordinary income rates. Hold it for one year or less and the gain is taxed as ordinary income. For current brackets, check IRS Publication 523 directly at irs.gov.

Under IRS Section 121, single filers can exclude up to $250,000 of capital gains from a primary residence sale. Married couples filing jointly can exclude up to $500,000. These figures come directly from IRS Publication 523. To qualify, you must have owned and lived in the home as your primary residence for at least two of the five years before the sale. The two years do not need to be consecutive.

Washington State charges REET on every real estate sale. The seller pays it at closing. Washington uses a graduated rate structure, meaning higher sale prices carry higher rates. For current REET rates and the exact graduated thresholds, check the Washington State Department of Revenue directly at dor.wa.gov — rates have changed in recent years and the DOR table is the authoritative source. Bellevue sits in King County, so the county portion of REET also applies. Your escrow officer will calculate the exact amount and show it on your closing disclosure before you sign.

If you ever rented your Bellevue home — even partially — the IRS requires you to recapture depreciation deductions you took during the rental period. That recaptured amount is taxed as ordinary income up to 25%, per IRS rules. This catches sellers off guard more than any other tax at closing. If the property was ever an Airbnb, a long-term rental, or had an accessory dwelling unit you rented out, talk to a CPA before you list.

Washington does have a capital gains tax, enacted in 2021 and upheld by the Washington Supreme Court. However, the sale of real estate is explicitly exempt from Washington's capital gains tax under RCW 82.87. That means your Bellevue home sale is not subject to Washington's capital gains tax. Your obligations at the state level come from REET, not the capital gains tax. Confirm current exemption language at the Washington State Department of Revenue, dor.wa.gov.

Start with your adjusted basis, then subtract it from your net proceeds. Your adjusted basis equals your original purchase price plus the cost of capital improvements you made — a kitchen remodel, a new roof, an addition — minus any depreciation you claimed. Net proceeds equal your sale price minus commissions, title fees, escrow fees, and other closing costs.

The difference is your gross gain. Subtract your Section 121 exclusion (if you qualify) and you have your taxable gain. Document every improvement with receipts. Sellers in established Bellevue neighborhoods like Bridle Trails or Somerset who bought years ago often find their taxable gain after the exclusion is zero or very small — but you need the paperwork to prove it.

Selling costs reduce your net proceeds and therefore reduce your taxable gain. Deductible selling costs typically include real estate commissions, title insurance fees, escrow fees, transfer taxes (REET), attorney fees related to the sale, and staging and repair costs required as a condition of sale (rules apply — confirm with your CPA).

Home improvements you made during ownership also increase your adjusted basis, which reduces the gain from the other direction. Keep every contractor invoice, permit, and receipt. The IRS can ask for documentation years after the sale closes.

The 2024 NAR settlement changed how buyer-agent compensation is negotiated and disclosed across the industry. It does not change any tax law. Sellers should be aware that compensation arrangements are now more openly negotiated, which may affect your net proceeds at closing — and net proceeds factor into your taxable gain calculation. Talk to your broker about how the new compensation structure affects your bottom line before you price the home.

The most effective tool is the Section 121 exclusion described above. Beyond that, strategies worth discussing with a CPA include maximizing your adjusted basis — every documented capital improvement increases your basis and shrinks your gain. A well-kept paper trail in a high-value market like Bellevue can mean tens of thousands of dollars in legitimate tax reduction.

Timing the sale around the two-year rule is also powerful. If you are close to meeting the two-of-five-year residency requirement, waiting to qualify for the exclusion is often the highest-ROI decision you can make.

If you are selling a Bellevue rental or investment property rather than a primary residence, a 1031 exchange lets you defer capital gains by rolling proceeds into a like-kind property. There are strict timelines and rules — work with a qualified intermediary and a CPA. IRS guidelines are at irs.gov. An installment sale, which spreads proceeds across multiple tax years to keep gains in lower brackets, is another CPA-level strategy worth exploring. None of these strategies should be attempted without a licensed tax professional.