Applying for a Withholding Tax Exemption? Here’s What You Need to Know

The Maryland “Non-Resident” Real Estate Withholding Tax is 8% for Individuals (8.25% for LLCs, Estates and Entities) on the PROCEEDS or GAINS from the sale of a property. 

A Full Exemption is possible if a seller can certify any of the special situations listed below.

  • Principal Residence
  • Principal Residence — Active-Duty Military, Certain Government Employees
  • Tax-Free Exchange for purposes of 1031 of the Internal Revenue Code
  • Transferor/Seller is receiving zero proceeds from this transaction because proceeds are going to another seller/owner (ex. consignor)
  • Transfer is pursuant to an installment sale under 453 of the Internal Revenue Code
  • Transfer of inherited property is occurring within 6 months of date of death
  • Transferor/seller is the custodian of an individual retirement account (IRA)
  • Transfer is pursuant to a specific Internal Revenue Code section

A Partial Exemption is possible, especially if a seller has paid income tax in the state of Maryland.

Before a seller fills out the Exemption Request, they will need to collect:

  • Mailing Address of Buyer’s Title Company
  • Settlement Statement from Purchase
  • Preliminary/ Estimated Settlement Statement from Sale (Ask the Title Company)
  • Receipts/ Proof of Capital Improvements
  • Depreciation Deducted on Federal Returns
  • Page 1 of Sales Contract
  • Complete Exemption Form https://www.marylandtaxes.gov/forms/21_forms/MW506AE.pdf .

They will then need to print and mail these items to the following address (proof of delivery recommended):

Comptroller of Maryland Revenue Administration Division
Attn: NRS Exemption Requests
P.O. Box 2031 Annapolis, MD 21404-2031

Upon review, a full or partial Exemption Certificate will be mailed to the Title Company within 21 days of receipt.

If a Seller fails to submit the Exemption Form 21 prior to settlement, they can complete a Refund Form and follow the same instructions listed above. https://www.marylandtaxes.gov/forms/21_forms/MW506R.pdf (Post Settlement)

 If you or your client have any questions, don’t hesitate to reach out to our team.

 Good luck with your sale!

 

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