Selling a property in Maryland? You might be eligible for a MD non-resident withholding tax exemption

Are you an out of town owner of a property in Maryland? You are likely to not know about this rule and it could impact the sale of your property! This was a great thing to know when helping our out of state client to sell their investment property. Fortunately our friends at Federal Title have neatly outlined what you need to do. Feel free to reach out to them with any questions about this rule.

Recently a Maryland agent was asked by a client who does not reside in Maryland, “When someone like me is selling a property, what’s a topic that most sellers don’t know about?” The seasoned agent thought about it for a moment and replied, “The Maryland non-resident withholding tax.”

The Maryland non-resident withholding tax was established to cover the costs of any possible capital gains tax accrued by the seller.

A Maryland law since 2003, the tax rate has changed over the years, and as of 2020, the rate is currently 8% of the total price of the sale for an individual’s property and 8.25% of the entire sale price for an entity’s property.

The withholding tax is held by your title company, who transfers the funds to the state when the deed is ready to be recorded.

Fortunately, non-resident sellers have the opportunity to file a full or partial exemption to the Maryland Office of the Comptroller, Revenue Administration Division.

Non-residents must file 21 days before the settlement date.

Exemptions include:

  1. The seller must certify under penalties of perjury of being a Maryland resident, with this distinction recorded on the deed.
  2. The seller must certify under penalties of perjury of being a Maryland resident as determined by the IRS and recorded by Maryland’s Department of Assessments and Taxation.
  3. The property is in foreclosure or a deed exists in lieu of foreclosure.
  4. The property will be transferred to the U.S. government.
  5. The property’s deed specifies the consideration paid is zero.
  6. The Comptroller has issued a certificate that states a reduced, or zero, amount tax is due.

If you think you might be eligible for a full or partial exemption, discuss with your financial advisor or accountant.

Source: Federal Title