Effective January 1, 2016, Maryland nonresident owners who are selling or transferring real property and/or associated tangible personal property in Maryland must make a tax withholding payment to the State Department of Assessments and Taxation or the Clerk of the Circuit Court. Payments must be made before the instrument of transfer or the deed is recorded with the State Department of Assessments and Taxation or the court clerk. We’ll tell you what you need to know about withholding taxes and explain what’s changing in Maryland for nonresident sellers.
What is a Tax Withholding Payment?
Withholding taxes require the payer of an item of income to deduct a portion of the payment to pay to the government. In most circumstances, the withholding tax applies to employment income, but it can also apply to rent and real estate sales. Nonresidents of certain states, in Maryland for example, are sometimes obligated to pay additional withholding taxes for the sale of real property.
Who is Responsible for Making the Payment?
The person responsible for your closing will take care of allocating funds for the withholding tax. In most cases this will be a title company like Lakeside Title. Your closing agent will pay the tax to the State Department of Assessments and Taxation or Clerk when the deed is presented for recording.
What is a Non-Resident Entity?
In Maryland, a nonresident entity is someone who:
• Is not formed under the laws of the state of Maryland more than 90 days before the date of sale or transfer of the property
• Is not registered or qualified with the State Department of Assessments and Taxation to do business in Maryland more than 90 days before the sale date of the property.
Important Details for Sellers
The withholding tax rate for nonresidents increased from 7% to 7.5% on January 1, 2016. When multiple owners are selling a single property, withholding taxes are required from each nonresident owner based on their ownership percentage. At the settlement, nonresident sellers must complete the Return of Income Tax Withholding for Nonresident Sale of Real Property—Form MW506NRS—and their settlement agent must present Copies A and B of Form MW506NRS.
Working with Lakeside Title
Lakeside Title is a title agency with 14 locations across Maryland, Pennsylvania, and Virginia. We serve all of Maryland, D.C., Northern Virginia, and Southern Pennsylvania with title insurance, title searches, residential sale and re-sale support, and more. We close more than 4,000 settlements a year. To learn more about our services, please visit our homepage.