Investment income

This page provides basic information on investment income. We will publish a Special Notice, Frequently Asked Questions, Interim Guidance Statements (IGS), Excise Tax Advisories, and Rulemaking on this page when they become available.

Steps we’re taking

We are devoting significant resources to developing and publishing guidance.

Current plans include:

• Multiple interim guidance statements (IGSs).
  • Our goal is to begin publishing IGSs over the next several months.
• Multiple updates to existing web content.
  • Web content updates will be released on a case-by-case basis as the department makes final policy determinations
• Drafting a new rule (within chapter 458-20 WAC), addressing investment income from personal (individual) investments, as well as investment income received by persons making investments through collective investment vehicles.

Your voice matters

We welcome your input, including areas where you believe guidance may be needed. Your questions and feedback will help us update guidance more frequently.

You can submit questions and comments to Rulings@dor.wa.gov. We will answer your questions as quickly as possible. However, it may take us longer than our standard 10 days. You do not have to tell us who you are if you are merely providing comments or feedback and would like general information.

Stay informed

Sign up to receive updates and alerts.

Topics

The department is developing guidance on specific issues related to the B&O tax and investment activities.

We expect to add more topics over time and will update this page regularly. Please use this page as your main source for guidance on the taxability of investments.

Investment income

“Gross income of the business” includes gains realized from trading in stocks, bonds, or other evidences of indebtedness, interest income, dividends, and other investment-related income without any deduction for losses (RCW 82.04.080). “Investments” include, but are not limited to:

• Securities.
• Trading account assets.
• Federal funds.
• Options.
• Futures contracts.
• Forward contracts.
• Notional principal contracts.
• Equities.
• Foreign currency transactions.
• Fixed income instruments.
• Derivative instruments.
• Commodities.

Deductible investment income

Generally, these are deductible:

• Incidental investment income, which is income from investments that equals less than 5% of the person’s total worldwide gross income annually. See our Investments tax topic article for more info.
  • Note: The deduction for amounts derived from incidental investments is not available to banking, lending, or security businesses as those entities are defined in RCW 82.04.4281.
• Distributions or dividends (RCW 82.04.4281(1)(b)), provided that:
  • For distributions, the amounts are derived from the business’s profits (i.e., an owner’s percentage or share of the profits) or retained earnings.
  • For distributions, the amounts are not a guaranteed payment.
  • The amounts are not compensation for goods and/or services provided to the business.
• Amounts derived from bona fide endowment funds. See RCW 82.04.4282 and our Investments tax topic article.

Apportionment

Generally, investment income is subject to business and occupation (B&O) tax under the Service and Other Activities classification. This is apportionable income, which means a taxpayer who is subject to an income tax or gross receipts tax in Washington and at least one other state must calculate their Washington income by multiplying their apportionable income by the receipts factor. For more information, see our Apportionment guide.

Persons not engaging in business

Persons who are not engaging in business are not subject to B&O tax on their income earned from investing. This category generally includes individuals who invest their own personal assets.

“Engaging in business" means commencing, conducting, or continuing in business and also the exercise of corporate or franchise powers as well as liquidating a business when the liquidators thereof hold themselves out to the public as conducting such business. See RCW 82.04.150.

As noted above, the department is currently working on additional guidance to clarify what it means to engage in business.

Entities entitled to unlimited investment deduction

Nonprofit organizations

Qualifying nonprofit organizations, as defined in RCW 82.04.3651, may deduct all of their investment income, even if it is not incidental to the main purpose of the person’s business.

Investment vehicles

Certain investment vehicles may deduct all of their investment income, even if it is not incidental to the main purpose of the person’s business:

• Collective investment vehicles (CIV).
  • For more information, see our interim guidance statement regarding CIVs.
• Family investment vehicles (FIV) and recipients of distributions therefrom.
• Retirement accounts and recipients of distributions therefrom.

Issues identified

What is an investment?

Are some types of interest deductible?

Are gains from real estate excluded from B&O tax?

What amounts are included in “total worldwide gross income of the business annually” for purposes of the ESHB 2081?

Can a business estimate their investment income on their monthly or quarterly returns and then “true up” at the end of the year?

Is investment income determined on a net basis?

How is investment income apportioned?

How to determine whether a person is “engaging in business” for Washington purposes?

What sections of ESHB 2081, if any, have retroactive effect prior to January 2026?

What is factoring for purposes of ESHB 2081?

More information

Coming soon.