Washington Real Estate Excise Tax Exemption for Inherited Property

Most executors in Washington panic when they see the Real Estate Excise Tax (REET) rate schedule and assume they owe thousands of dollars just to transfer an inherited house. They don't. But claiming the exemption requires a specific affidavit, and getting that document wrong can delay a property sale by weeks.

Here is exactly how the exemption works and what you need to file.

Washington REET: The Basics

Washington's Real Estate Excise Tax applies to most property transfers at a graduated rate — 1.1% on the first $525,000 of value, scaling up to 3% on amounts above $3.025 million. On a $600,000 home, that would be a bill of roughly $6,600 — enough to make any executor's stomach drop.

But Washington Administrative Code (WAC) 458-61A-202 explicitly exempts transfers of real property that occur "by devise of a will or the laws of intestate succession." In plain terms: inheriting a house does not trigger REET. Neither does a subsequent transfer of the property as part of settling the estate. The tax applies when someone sells real estate, not when property passes through death.

The catch is documentation. County auditors and title companies will not simply take your word for it.

The Two-Track Documentation Requirement

How you document the REET exemption depends on whether the estate went through formal probate.

If the estate was probated: Your personal representative will have Letters Testamentary from the Superior Court. When you record the Personal Representative's Deed transferring the property to heirs, the title company and county auditor will accept the certified Letters Testamentary as proof of the testamentary transfer, thereby granting the REET exemption automatically.

If the estate bypassed formal probate: This is where executors get stuck. If the property passed through a Community Property Agreement, a Trust, or through joint tenancy with right of survivorship, no court issued Letters Testamentary. In this situation, you need to draft, notarize, and record a Lack of Probate Affidavit (sometimes called an Affidavit in Lieu of Probate). This document states that probate was not required and that the property is being transferred by operation of law — not by a taxable sale.

The Lack of Probate Affidavit must be presented to the county auditor alongside the deed of conveyance and a certified copy of the death certificate. Each county has slightly different formatting preferences, though the substantive content requirements come from state law.

What About Selling the Inherited Property?

The REET exemption covers the transfer to the heirs or the trust. When an heir subsequently turns around and sells the property to a third-party buyer, that sale is a normal taxable event and REET applies at the graduated rates.

However, the federal capital gains tax picture looks very different. Because Washington is a community property state, the stepped-up basis rules under IRC Section 1014 are unusually favorable. When the first spouse dies, both halves of community property receive a step-up to the fair market value on the date of death. If a couple bought a home for $200,000 that is worth $900,000 at death, the entire $900,000 becomes the new cost basis. An heir who sells the home shortly after for $900,000 owes zero federal capital gains tax on the $700,000 of built-in appreciation.

Washington's own 7% capital gains excise tax does not apply to real estate at all. The state capital gains tax statute explicitly exempts the sale of real property (RCW 82.87.050). So when an heir sells inherited Washington real estate, the REET applies to the sale, but neither federal nor Washington capital gains tax typically causes a significant bill — provided the sale occurs before the property appreciates further.

Common Mistakes That Delay Property Sales

Mistake 1: Assuming title companies know the exemption applies. Title companies process hundreds of transactions and will flag an estate transfer for REET review regardless. Have your documentation ready at closing — the Letters Testamentary or Lack of Probate Affidavit — so the title officer can clear the exemption without delay.

Mistake 2: Using a photocopy of the death certificate. County auditors require a certified original with the embossed state seal from the Washington State Department of Health. Photocopies are rejected without exception. Order at least five to eight certified copies when you first register the death; the $25-per-copy fee is far cheaper than the delay caused by requesting additional copies weeks later.

Mistake 3: Overlooking DSHS Medicaid liens. If the decedent received Apple Health (Medicaid) long-term care after age 55, the Department of Social and Health Services may have placed a TEFRA lien on the property before death, or it may pursue a post-death estate recovery claim. Title companies will discover this lien during a title search and will not close the transaction until the lien is resolved. Contact the DSHS Office of Financial Recovery in Olympia early in the process to determine whether a lien exists and to negotiate its resolution before listing the property.

Mistake 4: Forgetting municipal REET overlays. When you eventually sell inherited property, Washington's REET is not the only rate that applies. Cities and counties can layer additional local REET on top of the state rate. The local overlay varies significantly — Benton City imposes a 0.50% surcharge while Hatton charges 0.25%. Your title company will calculate the combined rate, but it is worth understanding going in that the effective rate can be higher than the state schedule alone.

The Recording Fee

Even for REET-exempt transfers, you still pay standard recording fees to the county auditor. Current recording fees in Washington are approximately $303.50 for the first page of a standard document, plus $1.00 for each additional page. These fees are non-negotiable and apply to every recorded document, including the Personal Representative's Deed or any related affidavit. Budget for this cost when you are projecting estate closing expenses.

Getting the Sequence Right

The REET exemption does not require anything affirmative from the Washington Department of Revenue. The exemption is claimed at the county auditor's office at the time of recording the deed. The correct sequence is:

1. Obtain certified death certificates
2. Determine whether the estate requires probate (any solely-owned real estate forces you into formal probate under Washington law)
3. Either obtain Letters Testamentary from Superior Court, or draft and notarize a Lack of Probate Affidavit
4. Check with DSHS for any Medicaid liens
5. Record the Personal Representative's Deed (or other transfer deed) with the county auditor, presenting the exemption documentation simultaneously

The Washington Final Tax & Estate Tax Guide at /us/washington/estate-tax/ walks through this sequence in detail, including the specific contents required in a Lack of Probate Affidavit and how to calculate the gross estate value for Washington estate tax filing purposes if the estate is large enough to require a state return.

Understanding the REET exemption removes one of the most common sources of executor anxiety about inherited real estate in Washington. The tax is not triggered by inheriting property — it is triggered only when you sell it to someone else, and even then, the capital gains exposure is often minimal for recently inherited community property.

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