2026 Planning for 2027 Savings

Posted January 26, 2026, By Cole Ferrier

This is a follow-up to our previous article: Washington State Property Tax Exemptions: A Guide for Seniors & Disabled Persons.

When you're building a home, you have to follow a specific set of blueprints. If the rules for the foundation change mid-project, you have to adjust your plans to make sure everything stays on track.

For many Washington homeowners, the "blueprints" for property tax relief are about to get a major update. As we look toward 2027, two big changes are coming together: a scheduled update to income limits and a new law (HB 1106) that significantly expands which Disabled Veterans that can qualify for these savings.

If you are a senior, a person with a disability, or a veteran, understanding these new rules now is the key to securing a much-needed break on your tax bill in the near future.

How the System Updates: The "Data Lag" Effect

In Washington, property tax exemptions aren't based on a flat dollar amount. Instead, the state uses a "floating" limit based on the County Median Household Income (MFI).

Every three years, the state resets these income bars. We are currently in the 2024–2026 cycle. By law (RCW 84.36.385(8)), the Department of Revenue (DOR) must release the official new limits by March 1, 2026.

One thing to keep in mind is "Data Lag." Because the state's calculation clock only resets every three years, the current thresholds were set back in 2023 using data from 2022 and estimates at the time. This lag means our current limits are effectively "frozen" while the real world continues to change.

Tracking the Trends: The February / March 2026 Milestone

To understand where the 2027 thresholds are headed, we track the Median Household Income Estimates published by the Washington Office of Financial Management (OFM). The most recent finalized data showed that median incomes have continued to increase. The Upcoming "Hard Date": The timing here is critical. The OFM is expected to release its 2025 estimates before the end of February 2026. Because the Department of Revenue must publish the final tax thresholds by March 1, 2026, this February data release is the "final inning" of the calculation process.

While we cannot provide exact dollar-amount estimates for 2027 today, the "income momentum" in the preliminary data suggests that the adjustment on March 1st will be substantial.

A Deep Dive for the Data Curious: Exploring ACS Data

If you’re interested in looking at some of the raw "sensors" the state uses to build these estimates, you can explore the American Community Survey (ACS) data from the U.S. Census Bureau. While the OFM estimates are the official basis for the law, the ACS provides a real-time snapshot of how incomes are shifting on the ground.

For those who want to dig into the details, you can view the most recent Median Household Income tables for King and Pierce Counties here: Census Data Table B19013. This raw data often highlights the "Income Changes" before it is officially codified into tax law.

CRITICAL WARNING: It is essential to wait for the official Department of Revenue announcement, before taking any irreversible financial actions.

The "Invisible Income" Benefit for Veterans

One of the most valuable parts of the law involves how veteran benefits are counted. Under RCW 84.36.383(2), your "Combined Disposable Income" decides if you qualify.

However, there is a special deduction built into the law: while you must list your VA Disability Compensation or Dependency and Indemnity Compensation (DIC) on the application, you are allowed to subtract it entirely before the state calculates your final eligibility.

Important Distinctions for Veterans:

• Military Retirement vs. Disability: It is important to note that Military Retirement Pay is considered taxable income and does count toward your threshold. However, the specific portion of your pay that is classified as VA disability compensation is backed out.

• The "Any Rating" Rule: While you need a specific disability rating to enter the program before retirement age, the income exclusion applies to any amount of VA disability compensation you receive. Whether your rating is 10% or 100%, that specific dollar amount is "invisible" to the income ceiling.

• Documentation: To claim this deduction, you’ll typically need to provide your VA Benefit Summary Letter or Award Letter. This document clearly breaks down your monthly compensation so the assessor can accurately subtract it from your other income sources.

A New Door Opens for Veterans: HB 1106

One of the most significant aspects of this program is that disabled veterans qualify regardless of age. While most participants must be 61 or older, veterans with a qualifying service-connected disability rating are eligible as soon as they meet the income and residency requirements.

Previously, these younger veterans generally needed an 80% disability rating to qualify. Thanks to HB 1106, that requirement is dropping to 40% starting with the 2027 tax year. Combined with higher income limits and the "invisible income" deduction, thousands of Washington veterans of all ages will be eligible for relief for the first time.

Integrated Financial Planning: Engineering the "Property Tax Cliff"

In a holistic financial plan, everything is connected. While Washington does not have a state income tax, property taxes represent a significant local tax burden that behaves remarkably like one.

The savings from these exemptions can be substantial—often thousands of dollars per year. Because of the way the thresholds work, this program creates a "Property Tax Cliff." While there is no IRS 1040 line for it, the financial impact of crossing this boundary is identical to moving into a higher tax bracket: if your income is one dollar over the limit, you could lose 100% of the benefit.

When we look at your plan through an engineering lens, we view this threshold as a high-stakes boundary.

• If you are significantly above the limits: We must acknowledge that there may not be enough "levers" to pull to reach qualification. In these cases, we focus on other areas of efficiency within your portfolio.

• If you are near the boundary: The goal is to avoid being "just over" the cliff every year. This is where active income engineering becomes vital.

Just as a taxpayer in another state might manage their income to stay within a specific federal tax bracket or to qualify for ACA subsidies, you must engineer your 2026 income to stay below the 2027 property tax cliff. By optimizing the timing of capital gains or retirement distributions, we can often refactor your plan to secure these savings and provide a major boost to your retirement cash flow.

The Strategic "End of Q1" Check

Since your 2026 income determines your 2027 savings, this is your planning year. If you're considering a big financial move—like a Roth conversion or selling stock for a gain—it is wise to schedule a "Q1 Strategy Session." By waiting until after the official March 1st announcement, we can look at the exact new limits and define a strategy with respect to the new income levels.

Conclusion: Updating Your Plan

The 2027 thresholds are shaping up to be the most helpful we’ve seen in Washington. We help you navigate these shifting rules to ensure you aren't paying a penny more in taxes than you legally owe. Let’s schedule a time to review your strategy after the March update.

Contact us today to learn more.

Resources:

• WA OFM Median Income Website: Median Household Income Estimates by County

• Official Data Table (PDF): Historical Median Household Income Estimates

• Washington Law (RCW 84.36.383): Definitions for Property Tax Exemptions

• New Veteran Legislation (HB 1106): Veteran Disability Rating Expansion