If you sell real estate in Maryland but are not a resident, you may be subject to the Nonresident Withholding Tax. Learn more about this and the exemptions below!
What is the Nonresident Withholding Tax?
All nonresidents of Maryland who sell or transfer real property in Maryland must make a tax withholding payment to either the property’s local Clerk of the Circuit Court or the State Department of Assessments and Taxation (SDAT). Accordingly, the title company will withhold from seller proceeds at settlement and pay the withholding to the state if the seller is not able to certify exemption from withholding.
For a nonresident individual, the tax withholding amount is 7.5% of the total property’s sale price. If multiple individuals own the property, then each owner is responsible for paying a percentage of the withholding that equals the percentage that he or she owns. Additional expenses may apply, so refer to Box 8 of the tax withholding form to calculate your total.
If some owners are residents of Maryland and therefore exempt from this tax, then only the nonresidents’ shares are due. The payment(s) must be made before the property’s deed (or another instrument of transfer) is recorded by the Clerk or SDAT.
At closing, the seller completes Form MW506NRS (called the Return of Income Tax Withholding for Nonresident Sale of Real Property). The settlement agent then presents Copies A and B of this form and the tax payment to the Clerk or SDAT, along with the deed recording.
Nonresident Withholding Tax Exemptions
It is possible to receive a Certificate of Full or Partial Exemption, relieving the owner from some or all of the Maryland Nonresident Withholding Tax. A request must be submitted to the Comptroller of Maryland at least 21 days prior to closing in order to be eligible, so apply for the exemption as soon as the contract of sale is executed to ensure the settlement company receives the Certificate prior to closing.
A Partial Exemption means the owner is only responsible for paying a withholding tax on the net proceeds of the property sale. In other words, the owner can deduct any remaining mortgage payments from the sale price to get a reduced withholding tax amount.
Many sellers are able to sign the Certificate of Exemption from withholding at settlement and are fully exempted from the withholding. Full Exemption means the owner pays no tax at the time of the sale, but specific requirements and documentation require that:
The seller is a resident of Maryland.
The seller was a resident of Maryland for two of the last five years, as recorded by with SDAT.
The property transfer is the result of foreclosure or is a deed in lieu of foreclosure.
The property is being transferred to the government.
A Certificate of Full or Partial Exemption was issued by the Comptroller of Maryland, stating that no tax or a reduced tax amount is due at the time of the sale.
Maryland Nonresident Tax Refunds
Sellers who believe they paid too much Nonresident Withholding Taxes can fill out an Application for Tentative Refund of Withholding form, but they must wait at least 60 days after the sale of the property to submit it to the Comptroller of Maryland.
Maryland Nonresident Income Tax
The nonresident seller is not quite done, though. In addition to the Nonresident Withholding Tax, the owner is also required to file an income tax return with Maryland for the year in which he or she sold the Maryland property. The Maryland income tax rates are as follows:
|2018 MARYLAND INCOME TAX RATES|
|Taxpayers filing as Single, Married filing separately, Dependent Taxpayers, or Fiduciaries||Taxpayers filing Joint Returns, as Head of Households, or as Qualifying Widows/Widowers|
|Taxable Net Income||Maryland Tax||Taxable Net Income||Maryland Tax|
|$0 - $1,000||2.00%||$0 - $1,000||2.00%|
|$1,000 - $2,000||$20 plus 3.00% of the excess over $1,000||$1,000 - $2,000||$20 plus 3.00% of the excess over $1,000|
|$2,000 - $3,000||$50 plus 4.00% of the excess over $2,000||$2,000 - $3,000||$50 plus 4.00% of the excess over $2,000|
|$3,000 - $100,000||$90 plus 4.75% of the excess over $3,000||$3,000 - $100,000||$90 plus 4.75% of the excess over $3,000|
|$100,000 - $125,000||$4,697.50 plus 5.00% of the excess over $100,000||$100,000 - $125,000||$7,072.50 plus 5.00% of the excess over $100,000|
|$125,000 - $150,000||$5,947.50 plus 5.25% of the excess over $125,000||$125,000 - $150,000||$8,322.50 plus 5.25% of the excess over $125,000|
|$150,000 - $250,000||$7,260.00 plus 5.50% of the excess over $150,000||$150,000 - $250,000||$10,947.00 plus 5.50% of the excess over $150,000|
|Over $250,000||$12,760.00 plus 5.75% of the excess of $250,000||Over $250,000||$15,072.50 plus 5.75% of the excess of $250,000|
DISCLOSURE: This information is deemed reliable, but not guaranteed. To view current rates and information, visit the Comptroller of Maryland’s website.