Nonresidents Beware: Oregon's and Washington's Fractional Formula and Apportionment Rules Apply to In-State Property

At $13.99 million for 2025, the federal estate tax exclusion is the largest it has ever been, but it will be reduced by half in 2026, which you can read more about in this advisory.

Regardless of pending federal legislation to extend the increased federal estate tax exclusion, individuals with property within Oregon and Washington will continue to have state estate tax considerations. Currently, Oregon taxes estates that are valued at $1 million or greater, and Washington taxes estates that are valued at $2.193 million or greater, with each state implementing its own progressive tax rates for estates above those exempted amounts below.

Individuals living outside of either state may think that these state-specific tax regimes would not apply to them, but when such individuals own property in Oregon or Washington, they too can be faced with state-specific estate taxation.

Both Oregon's and Washington's state estate tax affects residents and nonresidents so long as an individual owns property within the state and their gross estate exceeds the thresholds above. The state estate tax uses the application of a fractional formula in Oregon and apportionment in Washington, which can lead to tax owed, even if the property within the state is otherwise eligible for a marital deduction.

Oregon

The Oregon estate tax fractional formula is a method used to determine the portion of an estate that is subject to Oregon's estate tax. This formula is particularly relevant for estates that include decedents' assets both within and outside of Oregon. Here's how it works:

For Oregon Residents:

1. Taxable Estate: The tax is calculated on the entire taxable estate, wherever located.
   
   
2. Fractional Formula:
   • Numerator: The sum of tangible personal property located in Oregon, real property located in Oregon, and all intangible property, regardless of location.
   • Denominator: The entire gross estate, wherever located.

If an Oregon resident holds all property in Oregon, then the fractional formula does not reduce the tax due.

For Nonresidents:

1. Taxable Estate: The tax is calculated on the entire taxable estate, wherever located.
   
   
2. Fractional Formula:
   • Numerator: The value of the assets subject to tax in Oregon, which includes tangible personal property and real property located in Oregon and intangibles. located in Oregon unless the state of domicile grants reciprocity.[2]
   • Denominator: The entire gross estate, wherever located.

By its design, the fractional formula ensures that Oregon taxes only the portion of any resident or nonresident estate that is connected to the state. However, due to this formula, even a small amount of Oregon property can trigger a tax obligation, as the filing determination is based on the size of the entire taxable estate.

Washington

The Washington estate tax apportionment method is used to determine the tax apportioned to property of a resident or nonresident decedents within Washington. This formula is particularly relevant for estates that include assets both within and outside of Washington. Here's how it works:

For Washington Residents and Nonresidents:

1. Taxable Estate: The tax is calculated on the entire taxable estate, wherever located.
2. Apportionment:
   • Numerator: The value of property located in Washington.
   • Denominator: The entire gross estate, wherever located.

Like Oregon, Washington offers a reciprocal exemption for intangible personal property of nonresidents if their home state provides a similar exemption for Washington residents. This means that intangible assets, such as stocks and bonds, may not be subject to Washington estate tax if the decedent's home state reciprocates.

As an example of how this estate tax system can impact a nonresident, suppose a California resident with a $5 million gross estate owns a vacation home in Washington worth $1 million and that is the only property the decedent owns in Washington. This ownership of property in Washington would trigger a filing requirement, even though the decedent's Washington property does not exceed $2.193 million, and tax may be due even if the Washington property is otherwise eligible for an estate tax deduction and even though the Washington property does not exceed the Washington exemption.[3]

Due to the way the numerator and denominator are defined, Oregon's fractional formula and Washington's apportionment can lead to unexpected tax liabilities, especially for nonresidents with minimal property in either state.

To minimize exposure to additional estate tax, nonresidents with Oregon or Washington tangible property or real property should be alert to these additional tax implications and review their situation with a focus on their ownership of out-of-state property.