Maryland real estate withholding tax

There have been occasions when I have been at the settlement table and the Maryland Withholding Tax became a major surprise to the seller. The seller is surprised when I place an affidavit in front of him asking him to state that he is a Maryland resident and he is not.

The following is some basic information about the Maryland Withholding Tax.

When is your client affected by Maryland Withholding?

Your client is affected if your client is not a Maryland resident and has not lived in the property as his/her principal residence for 2 out of the last 5 years.

  • If your client is an entity, your client is affected if the entity is:
  • A “nonresident entity” is defined to mean an entity that:

    (a) is not formed under the laws of Maryland more than 90 days before the date of sale of the property, and

    (b) is not qualified by or registered with the Department of Assessments and Taxation to do business in Maryland more than 90 days before the date of sale of the property; or
  • A Trust that was a not formed under Maryland law and/or not governed under Maryland Law; or
  • An Estate where the decedent was not a Maryland resident.

What does your client need to do?

Apply for an exemption by filing a Maryland Form at least 21 days before date of settlement and received an exemption certificate; or pay 7.5% if an individual or 8.25% if a non-Maryland entity of the sales proceeds directly to the State of Maryland via the closing agent at settlement.

How is my purchaser affected by Maryland Withholding?

Your purchaser is not affected at all by Maryland Withholding.

Can any of the paperwork be filed in advance?

Yes, the requisite forms can be filed as soon as you have a ratified contract.

How long does it usually take the State for Maryland to give a decision as to the exemption?

Typically it takes 21 days to receive a certificate of exemption, partial exemption or non-exemption.

Who usually files the requisite forms?

If the seller is paying 7.50% (or 8.25%) of the sales proceeds as part of settlement, then the settlement agent/attorney will file the forms and pay the money directly to the State of Maryland.

If the seller wishes to file for an exemption, then the seller hires the settlement agent, a tax attorney or an accountant to file the forms. There is usually an additional fee to handle the exemption filings.

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