$1,300,000 and a net short-term capital loss of $20,000. David had no
other capital gains or losses.
Result: Neither the $50,000 ordinary loss nor the $20,000 short-
term capital
loss David reported on his 2023 federal tax return are
included in his federal net long-term capital gain. As a result, nei-
ther loss amount is included in calculating David's Washington capital
gains. David's 2023 Washington capital gains amount is his federal net
long-term capital gain, $1,300,000, subject to the exemptions and de-
ductions discussed in subsections (4) and (5) of this rule.
Example 9: Section 1061 applicable partnership interests.
Facts: Marcy owns interests in partnerships that are "applicable
partnership interests" under I.R.C § 1061. Marcy is a Washington domi-
ciliary. In 2023, she reports on her federal tax return $1,000,000 in
capital gain passed through from her partnerships, all from the sale
of intangible long-term capital assets. A portion of this capital
gain, $200,000, is recharacterized as short-term capital gain under
I.R.C. § 1061. She reports the remainder, $800,000, as long-term capi-
tal gain. Marcy has no other capital gain or losses in 2023.
Result: The $200,000 in capital gain that is recharacterized as
short-term capital gain under I.R.C. § 1061 is not part of Marcy's net
long-term capital gain reportable for federal income tax purposes.
Therefore, Marcy's 2023 Washington capital gains amount is $800,000,
subject to the exemptions and deductions discussed in subsections (4)
and (5) of this rule.
Example 10: Loss carried forward from a prior year.
Facts: In 2023, John incurs a $1,003,000 long-term capital loss
from a sale of stock while John was domiciled in Washington. John does
not have any capital gains against which he can apply the loss. Under
I.R.C. § 1211, $3,000 of the loss is applied against ordinary income
that John earned in 2023. Therefore, $1,000,000 of the loss is carried
forward to 2024 under I.R.C. § 1212. In 2024, John incurs a $4,000,000
long-term capital gain from sales of stock while John continues to be
domiciled in Washington. On John's federal return, John applies the
$1,000,000 loss from 2023 and reports a federal net long-term capital
gain of $3,000,000 for 2024.
Result: To calculate John's 2024 Washington capital gains, the
starting point is John's federal net long-term capital gain of
$3,000,000. None of the adjustments in RCW 82.87.020(1) apply in de-
termining John's adjusted capital gain. Therefore, John's 2024 Wash-
ington capital gains amount is $3,000,000, subject to the exemptions
and deductions discussed in subsections (4) and (5) of this rule.
Example 11: Out-of-state loss carried forward from a prior year.
Facts: Same facts as Example 10, except John incurs a net
$1,003,000 long-term capital loss from a sale of stock while John was
domiciled in Oregon, and John becomes domiciled in Washington in 2024.
Result: To calculate John's 2024 Washington capital gains, the
starting point is John's federal net long-term capital gain of
$3,000,000. RCW 82.87.020 (1)(c) instructs that the $1,000,000 loss
carryforward must be added back to the $3,000,000 federal net long-
term capital gain amount because all $1,000,000 of the loss was from a
sale or exchange that was not allocated to Washington. Therefore,
John's 2024 Washington capital gains amount is $4,000,000, subject to
the exemptions and deductions discussed in subsections (4) and (5) of
this rule.
Example 12: Short-term capital losses.
[ 7 ] OTS-4743.9
This rule was adopted June 28, 2024 and becomes effective July 29, 2024. It may be used to
determine tax liability on and after the effective date, until the codified version is available from the code reviser's office.