Don’t Get Blind-Sided: How Maryland’s 8.75% Non-Resident Withholding Tax Works

 

Selling property in Maryland? If you live out of state, or moved away a number of years before selling, there is a critical tax rule that could take a 8.75% chunk out of your net proceeds right at the settlement table. Maryland has required Title Companies to withhold tax on non-resident real estate transfers since 2003. Here is what you need to know so you aren't caught off-guard on closing day.

When Does the 8.75% Maryland Tax Withholding Apply?

Unless you qualify for a specific exemption, the Title Company is legally mandated to withhold 8.75% of your net proceeds if you fall into either of these scenarios:

• Selling an Investment Property: You live out of state and sell a rental or investment property located in Maryland.

• Out-of-State Relocation: You owned a home in Maryland, relocated to another state, updated your official residency status, and then sold your Maryland home.

Key Exemptions: When You Do NOT Have to Pay

You can avoid the 8.75% automatic withholding if you meet any of the following conditions:

1. You Are Still a Maryland Resident: If you moved out of state shortly before closing but have not yet officially changed your legal residency, the state of Maryland still considers you a resident for this transaction.

2. Primary Residence Rule (2 of 5 Years): If you lived in the Maryland home as your primary residence for at least 2 out of the last 5 years prior to the sale date, you are exempt from the non-resident withholding.

How to Apply for an Exemption (Form MW506AE)

If you are a non-resident who qualifies for a reduced tax or complete exemption, provide the Certificate of Exemption to the Title Company and they will not withhold your cash unnecessarily.

• Action Item: File Form MW506AE (Application for Certificate of Full or Partial Exemption) with the Maryland Comptroller.

• Deadline: This form should be submitted no later than 21 days before your settlement/closing date for sufficient turnaround time.

Need Help Navigating Maryland Real Estate Taxes?

Tax rules and real estate closing paperwork can get overwhelming quickly. If you have questions about selling your Maryland property, determining your residency status, or applying for Form MW506AE exemptions, reach out today for guidance before heading to the closing table!