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Selling Maryland Property as a Non-Resident: What You Need to Know About Taxes and Withholding

When non-residents sell real estate in Maryland, whether it’s a rental, vacation home, or investment property, the tax implications go beyond federal capital gains. The state has specific withholding rules designed to ensure it collects any state income tax due on profits. Understanding these rules ahead of time can save you headaches and unexpected costs at closing.

What Non-Residents Need to Know

Maryland requires that non-resident sellers account for taxes on capital gains. Many sellers refer to this as an “exit tax,” but it is actually a withholding requirement. This ensures the state collects any income tax owed on profits from the sale, even if the seller lives out of state.

The Withholding Rate

  • For a non-resident individual: 8% of the net proceeds from the sale.

  • For a non-resident entity, such as an LLC or corporation: 8.25% of net proceeds.

How Net Proceeds Are Calculated

Withholding applies to the net proceeds, meaning the sale price minus mortgages, liens, and eligible selling expenses such as commissions and transfer taxes. Because of this, the amount withheld is often larger than the actual capital gain, which can surprise some sellers.

Reducing or Avoiding Withholding

Non-resident sellers have options if they plan ahead:

  • Apply for a full or partial exemption before closing if the property qualifies as a principal residence.

  • If an exemption is not granted or requested, you can request a refund of excess withholding after the sale.

Filing Requirements and Capital Gains

  • The withholding is a pre-payment of Maryland income tax, not a final determination.

  • Non-residents must file a Maryland income tax return for the year in which the property is sold, reporting the actual gain or loss.

  • If the amount withheld exceeds the tax due, the seller will receive a refund.

Key Takeaways for Non-Resident Sellers

  • Be prepared for 8% of net proceeds to be withheld at closing.

  • Apply early for an exemption if you qualify to avoid over-withholding.

  • Withholding is not your final tax liability—you may recover some or all of it through filing.

  • Factor potential withholding into your net proceeds calculations to avoid surprises.

Conclusion

While often called an “exit tax,” Maryland’s non-resident withholding is really a prepayment mechanism to secure state income tax. For non-resident investors, landlords, and vacation-home owners, understanding these rules and planning ahead is crucial to maximize your net proceeds. Consulting a qualified tax professional familiar with Maryland’s rules is highly recommended before selling.

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