If you are selling property in Maryland but are not a Maryland resident, you may need to comply with the state's Nonresident Withholding Tax. Here’s what you need to know, including possible exemptions:
What is the Nonresident Withholding Tax?
Nonresidents of Maryland who sell or transfer real estate within the state are required to pay a withholding tax. This payment is made through the local Clerk of the Circuit Court or the State Department of Assessments and Taxation (SDAT). At closing, the title company withholds the tax from the seller's proceeds and remits it to the state unless the seller qualifies for an exemption.
For individuals, the withholding rate is 8% of the property’s sale price. If the property is owned by multiple individuals, each owner pays a portion of the withholding proportional to their ownership share. Additional costs may apply, so sellers should use Box 8 of the tax withholding form to calculate the total amount.
If some owners are Maryland residents (and therefore exempt), only the nonresident owners are required to pay the withholding. Payment must be made before the deed or other transfer document is recorded by the Clerk or SDAT.
At settlement, sellers are required to complete Form MW506NRS, which documents the income tax withholding for nonresidents. The settlement agent submits this form along with the withholding payment to the Clerk or SDAT, ensuring the transfer is properly recorded.
Exemptions from the Nonresident Withholding Tax
Certain exemptions can reduce or eliminate the withholding tax. Sellers may request a Certificate of Full or Partial Exemption from the Comptroller of Maryland. To qualify, this request must be submitted at least 21 days before settlement. Applying early—right after the sales contract is signed—is crucial to avoid delays at closing.
A Full Exemption means no withholding tax is due at settlement. This typically applies when:
The seller is a Maryland resident.
The seller has been a Maryland resident for at least two of the last five years.
The sale is a result of foreclosure or a deed in lieu of foreclosure.
The transfer is to a government entity.
A Certificate of Exemption is issued by the Comptroller, confirming no tax is due.
A Partial Exemption applies if the withholding tax is based on the property’s net proceeds (the sale price minus any outstanding mortgage or liens). This reduces the tax amount owed at settlement.
Refunds for Overpayment
If you believe you overpaid the Nonresident Withholding Tax, you can apply for a refund. To do so, complete an Application for Tentative Refund of Withholding form and submit it to the Comptroller of Maryland at least 60 days after the property sale.
Maryland Nonresident Income Tax
In addition to the withholding tax, nonresidents must file a Maryland state income tax return for the year the property was sold. This ensures any remaining taxes owed are paid, or refunds for overpayment are issued.
The income tax rates vary based on filing status and taxable income. Refer to the Maryland Comptroller’s website for the most up-to-date rates.
Disclaimer
This information is intended to provide general guidance but is not guaranteed. For the most accurate and current details, visit the Comptroller of Maryland's website.
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