Commercial Real Estate Ownership: Oregon vs. Washington

Executive Overview

Key Findings

Washington offers significant income tax advantages with no state personal income tax
Oregon's Maximum Assessed Value (MAV) system provides property tax stability
Washington's REET significantly higher than Oregon's minimal transfer taxes
Capital gains treatment differs substantially between states

Strategic Considerations

Hold period strategies impact tax efficiency
Entity structure selection critical for optimization
Cross-border planning opportunities exist
Market dynamics favor different property types

Comprehensive Tax Comparison

Tax Category	Oregon	Washington	Advantage
Property Tax Rates	Multnomah County: ~0.99% ✓ MAV 3% annual cap ✓ Measure 50 protection	Clark County: ~0.86% ⚠ No growth caps Market-based assessment	Oregon (Long-term)
State Income Tax	Individual: 4.75% - 9.9% Corporate: 6.6% - 7.6% ✗ Applies to rental income	No State Income Tax ✓ Significant savings B&O Tax: 0.484% service/other	Washington
Capital Gains Tax	Taxed as ordinary income Up to 9.9% state rate ✗ No preferential treatment	Real Estate Exempt 7% on other long-term gains ✓ $270,000 deduction (2024)	Washington
Transfer Taxes	Statewide: None Washington County: $1/$1,000 ✓ Minimal cost	REET: 1.1% - 3.0% (graduated) Plus local REET varies ✗ Significant transaction cost	Oregon
Estate Tax	$1M exemption Rates: 0.8% - 16% ✗ Lower exemption	$3M exemption (2025) Rates: 0.8% - 35% ✓ Higher exemption	Washington

Tax Impact Analysis: Sample Scenarios

Annual Tax Burden Comparison

Transaction Cost Analysis

Advantages of Oregon Commercial Real Estate

Property Tax Stability

Maximum Assessed Value (MAV) caps annual increases at 3%
Measure 50 provides long-term tax predictability
Protection against rapid market appreciation impacts
Significant advantage for long-term hold strategies

Low Transaction Costs

No statewide real estate transfer tax
Only Washington County charges minimal transfer tax ($1/$1,000)
Lower barriers to frequent transactions
Beneficial for value-add and flip strategies

Market Familiarity

Established local market knowledge
Existing professional networks and relationships
Known regulatory environment and processes
Reduced due diligence and learning curve costs

Regulatory Advantages

Established depreciation and cost segregation practices
Predictable assessment and appeal processes
Well-developed 1031 exchange infrastructure
No sales tax on most commercial real estate services

Advantages of Washington Commercial Real Estate

Income Tax Advantages

No state personal income tax
Significant savings on rental income (up to 9.9% saved vs. Oregon)
No tax on passive investment income
B&O tax only on gross receipts, not net income

Capital Gains Benefits

Real estate sales completely exempt from state capital gains tax
Up to 9.9% savings on appreciation gains vs. Oregon
Favorable for value-appreciation strategies
No depreciation recapture at state level

Estate Planning Benefits

Higher estate tax exemption ($3M vs. $1M in Oregon)
Better wealth preservation for high-net-worth individuals
More favorable for family wealth transfer strategies
Potential residency planning opportunities

Market Opportunities

Strong economic growth in tech and aerospace sectors
Geographic diversification benefits
Access to Seattle metropolitan market
Cross-border investment opportunities

Key Challenges and Disadvantages

Oregon Challenges

High Income Tax Burden

State income tax up to 9.9% significantly reduces net cash flow from rental properties

Capital Gains Treatment

No preferential capital gains treatment - taxed as ordinary income at full rates

Lower Estate Tax Exemption

$1M exemption vs. $3M in Washington creates estate planning challenges

Washington Challenges

High Transfer Taxes

REET from 1.1% to 3% creates substantial transaction costs, especially for frequent trading

Property Tax Volatility

No growth caps mean property taxes can increase significantly with market appreciation

Market Unfamiliarity

Learning curve for new market, regulations, and building professional networks

Strategic Recommendations

Hold Period Strategy

Long-term holds (5+ years): Oregon's MAV system provides excellent tax stability
Short-term flips: Washington's lower transaction costs may be advantageous
Value-add plays: Consider Washington for high-appreciation potential

Entity Structure

Washington properties: Consider single-member LLC for income tax benefits
Oregon properties: Evaluate S-Corp election for active management
Multi-state portfolio: Delaware holding company structure

Geographic Diversification

Risk mitigation: Spread regulatory and market risk across states
Tax optimization: Utilize each state's tax advantages
Market cycles: Benefit from different economic cycles

Additional Considerations

Regulatory Environment

Oregon

Established landlord-tenant laws, rent control in some areas, strong tenant protections

Washington

Generally more landlord-friendly, varying local regulations, emerging rent stabilization policies

Market Trends

Economic Growth

Washington's tech sector driving strong commercial demand, Oregon's diversified economy provides stability

Interest Rate Sensitivity

Both markets affected by federal monetary policy, but different sensitivity levels by property type