Selling Maryland property from out of state: nonresident withholding explained

Who this applies to

When the seller of Maryland real estate is not a Maryland resident, state law requires income tax to be withheld from the sale before the deed can be recorded, unless an exemption applies. It catches the owner who moved out of state and kept the townhouse as a rental, heirs in Pennsylvania who now own a parent’s house, and the company formed in another state that owns a building here. The other taxes paid at settlement are on our Maryland closing costs page.

For a company, the test is not where its owners live. Under the statute, a nonresident entity is one that was not formed under Maryland law and is not registered with or qualified by the State Department of Assessments and Taxation (SDAT) to do business in Maryland. The Comptroller’s regulation and Form MW506NRS add a timing rule: the Maryland formation or registration must date from more than 90 days before the sale. Under that rule, an LLC formed in Delaware that registered in Maryland years ago counts as a resident entity, while one that registered within the 90 days before the sale does not. If your company formed or registered here recently, tell us early.

This is a Maryland rule about sellers who live in another state. A seller who is a foreign person for federal tax purposes may also face federal withholding under FIRPTA, which is a separate law with its own forms. Tell us at the start if that might apply.

How much is withheld, and on what

For sales on or after July 1, 2025, the rates are:

• Individuals, estates and trusts: 8.75%. This rate is the top state income tax rate plus the lowest county rate, so it rose on July 1, 2025 when the Budget Reconciliation and Financing Act of 2025 raised the top state rate.
• Business entities: 8.25%, the corporate income tax rate. That rate did not change.

The rate is charged on the seller’s net proceeds, not on the profit. The law calls this the “total payment”: the net proceeds actually paid to the seller. On Form MW506NRS, that is the sale price, less the commission and the other costs the seller pays because of the sale, less any mortgage or other lien on the property paid off at settlement. Where there is more than one owner, each nonresident owner’s share is worked out by ownership percentage. In plain terms, it is close to the cash the seller would walk away with.

One trap: under the Comptroller’s regulation, a loan secured on the property within 90 days before the sale is not subtracted. Refinancing or taking out a home equity loan just before selling does not shrink the withholding.

So the withholding can be much larger than the tax the seller finally owes. It is not an extra tax but a prepayment of Maryland income tax, claimed on the seller’s Maryland return for the year of the sale.

A worked example

These numbers are made up to show the method. Say a seller who now lives in North Carolina sells a former rental home for $400,000. The mortgage payoff is $250,000 and the seller’s settlement costs are $30,000. Net proceeds are $120,000, and at the individual rate of 8.75% the withholding is $10,500.

Now look at the gain, the way Form MW506AE does. The seller bought the home for $360,000, paid $8,000 in costs when buying, and has receipts for $20,000 of improvements. Add the $30,000 of selling costs and the total is $418,000. Take off the $40,000 of depreciation the seller claimed while renting the home, and the adjusted basis is $378,000. The gain is $22,000, so the form’s calculation comes to about $1,925 instead of $10,500. Had the home never been rented, with no depreciation, the basis would be more than the price and the calculation would show nothing due. The Comptroller works out the final figure from the documents you send, so treat your own sum as an estimate, not a promise of what the certificate will say.

Ways to owe nothing at settlement

Maryland law and the Comptroller’s regulation let the deed be recorded with no withholding when one of these applies:

1. The seller is a Maryland resident or resident entity and says so under penalty of perjury, in the deed or in an affidavit recorded with it.
2. The property was the seller’s principal residence, as defined in section 121 of the Internal Revenue Code, and the seller certifies that under penalty of perjury. Section 121 generally means you owned the home and lived in it as your main home for at least two of the five years before the sale. Someone who moved out of state recently and is selling the house they lived in may qualify.
3. The seller has a certificate from the Comptroller saying no tax is due, a reduced amount is due, or the tax has already been paid or secured. You apply on Form MW506AE, described below.
4. The sale is a foreclosure or a deed in lieu of foreclosure, the seller is the United States, the State or one of its units or political subdivisions (such as a county), or the deed’s statement of consideration shows zero.

When there is more than one seller, the law has each seller give his or her own resident or principal residence statement. The Comptroller’s withholding form is filled in separately for each nonresident seller (spouses filing a joint Maryland return share one), using that seller’s ownership percentage. If the owners live in different states, or only some of them qualify for an exemption, tell us early so the withholding can be worked out before settlement.

Form MW506AE: asking for a reduced amount

A seller who does not fit points 1, 2 or 4 can apply for a certificate of full or partial exemption on Form MW506AE. The form works out your estimated gain: purchase price (or value at death, for inherited property), plus documented improvements, plus buying and selling costs, minus any depreciation claimed, times your ownership share. The rate is applied to that gain instead of the net proceeds.

What matters in practice:

• Timing. The form and every supporting document must reach the Comptroller at least 21 days before settlement. An application with no settlement date is not processed. The deed cannot be recorded without either the payment or the certificate, so if the certificate has not arrived by settlement, plan on the full amount being withheld and the difference being claimed later.
• Proof. Attach the settlement statement from when you bought (or the death certificate and a date-of-death appraisal), paid invoices or receipts with cancelled checks for improvements, the sales contract or preliminary settlement statement, and a depreciation schedule or returns for any years the property was rented.
• Rental returns. If the property was ever rented, you must already have filed Maryland nonresident returns reporting that rental income or loss. If you have not, the application is denied.
• One form per seller, unless the sellers are spouses filing a joint Maryland return.
• Special situations on the form include a principal residence (the Comptroller checks that Maryland resident returns were filed for those years), a 1031 exchange (with a letter from the qualified intermediary stating any boot), an installment sale, and inherited property sold within a year of the death.
• No appeal. The Comptroller’s decision and the amount are final.

The form asks for the name and mailing address of the title company or settlement agent, and the certificate is mailed there. If we are handling your settlement, put our name and address on it.

Getting withheld money back

If tax is withheld, it is paid to the Clerk of the Circuit Court with Form MW506NRS when the deed is recorded, and the clerk passes it to the Comptroller. You get Copy C of that form at settlement. Keep it, because you need it to claim the money. There are two ways to recover any excess:

• Tentative refund on Form MW506R. This form is optional. Under the 2026 form, it can be filed no sooner than 60 days after the withholding is paid to the clerk and must be filed before December 1, 2026, so a sale that closed on or after October 1, 2026 cannot use it; that money is claimed on the 2026 return instead. It is open only to individuals, estates, trusts and C corporations (not pass-through entities, although an individual who is the only member of a single-member LLC may apply), and only when the sale and any rent from the property are your only Maryland income. The Comptroller’s decision on it is final.
• The annual Maryland return. Everyone else files the Maryland return for the year of the sale (Form 505 for a nonresident individual) and claims the withholding there. Anyone who got a tentative refund must still file that return and report the sale.

A seller cannot use the tentative refund at all if the price was $1,500,000 or more. The Comptroller ties this limit to Maryland’s new capital gains surcharge for higher-income individuals. A seller in that position claims the withholding on the annual return, with any other forms that apply.

Who pays what at settlement

The withholding comes out of the seller’s proceeds. The buyer does not pay it, and the law says the buyer, the title company and title insurer, the settlement agent or closing attorney, the lender and the real estate agents or brokers are not liable for the amount that has to be collected.

The other settlement taxes follow the usual Maryland rule, set out in who pays transfer tax in Maryland: Recordation tax and state and county transfer taxes are presumed to be shared equally between buyer and seller unless the contract says otherwise. Sellers should also know one more rule. For a sale to a first-time Maryland home buyer who will live in the home: the seller pays the whole state transfer tax (no exception), and the seller pays the whole recordation tax and county transfer tax unless the contract expressly says otherwise. The seller view of our closing cost calculator shows the transfer and recordation taxes at your price, with the seller’s usual share. Those figures are separate from withholding. Our instant quote adds title insurance and the settlement fee.

From contract to settlement when you live out of state

1. At listing or offer. Tell your agent and us where every owner lives. Our seller’s checklist lists the papers to gather.
2. After the contract is signed. The title search and mortgage payoff figures are ordered. Once the payoffs are known, your net proceeds and the likely withholding can be estimated.
3. Decide on the route. If you qualify as a resident or under the principal residence rule, the sworn statement goes in the deed or a recorded affidavit. If a certificate could help, gather your purchase records and get Form MW506AE to the Comptroller well before the 21-day cut-off.
4. Signing. If you cannot be in Maryland for settlement, tell us early so the signing can be planned. A deed signed in another state is normally signed in front of a notary there.
5. Settlement. The withholding, or the reduced amount on your certificate, is held back from your proceeds.
6. Recording. The deed goes for recording to the Clerk of the Circuit Court in the county where the property sits, with the withholding and Form MW506NRS. For an Anne Arundel property, that is the Clerk of the Circuit Court for Anne Arundel County, Land Records Department.
7. After settlement. File Form MW506R after 60 days if you qualify, or claim the withholding on your annual return.

Title issues that often come with an out-of-state seller

• Inherited homes. If the estate is still open, the personal representative usually signs the deed. How withholding applies when an estate or heirs sell depends on the facts, including who holds title and who is signing, so tell us at the start. Our deeds and family transfers page covers deeds after an inheritance.
• Tenants. A rental often comes with a lease and a security deposit. Agree in the contract whether the buyer takes the tenant or the home is delivered empty.
• Bills that piled up while you were away. Owners who have been gone for years sometimes miss a water bill, an HOA assessment or a property tax bill. We check for these before settlement, and any that are due are normally paid from the proceeds.
• Wiring your proceeds. Out-of-state sellers almost always get their money by wire, which makes them a target for fake wiring instructions. We send wire instructions by email. Before you send your bank details or act on any wiring instructions, call our office at (410) 768-2300, the number on this website, and confirm them by voice. Never use a phone number from an email. Our wire fraud warning explains what to watch for.

How we help

We have handled Maryland settlements since 1994. For a seller who lives outside the state, we look early at whether the resident or principal residence statement fits, help you understand the likely withholding, prepare the settlement statement, and send the deed for recording with the right forms.

If you will be in Maryland, you can settle at our office at 306 Crain Hwy N in Glen Burnie, or we come to you anywhere in the state at no extra cost. If you will not, we arrange a remote settlement; the signing step above explains how to plan for it. Weekend and after-hours settlements are available by appointment. More on how a sale settles is on our residential settlement page, and the 1031 exchange page covers trading into another investment property.