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Maryland Withholding Tax

Withholding Tax clarified - Maryland charges a Withholding Tax on the sale of real estate. The Maryland Withholding Tax is actually not a sales tax or a transfer tax. It is truly only a Withholding Tax. Basically Maryland wants to withhold funds from the sale of real estate to protect Maryland's share of income tax from those people making a profit on the sale of their Maryland real estate.

Withholding Tax Rate - Individuals are subject to a 8.00% rate and Entities are subject to a 8.25% rate. The tax is computed as the rate times the net proceeds of sale.

Exceptions to the Withholding Tax Requirement - If you fall into any of these categories you will not have to pay Withholding Tax at the time of settlement.

  1. Maryland residents - Maryland residents are exempt from withholding tax.
  2. Out of state residents selling their former principal residence - In order to qualify for the exemption, you need to have lived in the property as your former principal residence for 2 out of the past 5 years and the property was registered as your principal residence with the SDAT.
  3. Entitites that are timely registered with the SDAT. - To verify if your entity is registered, you can check the State Registration Page.

Exemptions - If you do not fall within one of the above exceptions, you can apply in advance of settlement for an exemption from the tax. You can get the exemption Application from the State on this site. Choose the appropriate year and look for the MW506AE form.

Refunds - If you do pay withholding tax, but feel that some or all of the tax you paid is due as a refund, you can get the Refund Application from the State. Choose the appropriate year from the above State site and look for the MW506R form.

Need some help with a real estate transaction?

Our office can assist you. Please contact us with your question and we will be glad to assist.