“Maryland exit tax” is a phrase I hear from sellers almost every week. Two people asked me about it this past week alone. There is no Maryland exit tax on home sales. What people are almost always asking about is the Maryland non-resident withholding, a prepayment mechanism that applies in specific situations, and that most Southern Maryland sellers never encounter at all. This post explains what the withholding is, who it applies to, what the 2026 rates are, and how to reduce it if you qualify.
The withholding is separate from Maryland transfer and recordation taxes, which every seller pays at closing regardless of residency. The Maryland transfer and recordation tax guide covers those rates by county.
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What People Mean When They Say “Maryland Exit Tax”
The phrase “Maryland exit tax” is not an official term. No Maryland statute uses those words. What sellers are actually describing is the Maryland non-resident withholding, and the distinction matters because the two work very differently and have very different exemptions. Whether it applies to your sale, and whether you can get out of it legally, depends on a few specific facts about your situation.
The framing is understandable but misleading. If you sell your Maryland home, relocate to another state, and then see money withheld at closing, it can feel like a penalty for leaving. It is not. The withholding is a prepayment mechanism, not a tax on moving. Understanding the distinction changes how you plan for it and what you can do about it.
The Maryland Non-Resident Withholding: How It Actually Works
Maryland requires settlement agents to withhold a portion of a non-resident seller’s gross proceeds at closing. Before calculating your net proceeds, it helps to start with an accurate home value estimate. The withheld amount is sent to the Maryland Comptroller and held against whatever Maryland income tax the seller may owe on the sale.
Use the Maryland seller closing cost calculator to model your full closing costs and see what you will net after the exit tax withholding, agent fees, and other closing expenses.
The critical word is withholding, not tax. This is not a final bill. It works the same way an employer withholds income tax from a paycheck, money is held upfront as an estimate, and the actual liability gets settled when you file your return. If the withheld amount exceeds what you actually owe Maryland, you get the difference back. If you owe more than was withheld, you pay the balance.
One detail worth knowing: the withholding is calculated on your gross proceeds, meaning the full sale price. Your actual Maryland tax liability, however, is calculated on the net gain after allowable deductions. That gap between the two is why the withholding often feels large relative to what you ultimately owe. It also means you should expect a refund of at least some of the withheld amount when you file, unless your gain is close to the gross proceeds.
Who the Non-Resident Withholding Applies To
The withholding applies only to sellers who are not Maryland residents at the time of settlement. If you live in Maryland and are selling property here, this does not apply to you.
Sellers who commonly run into this in Southern Maryland:
- Military families who were stationed at NAS Patuxent River or Indian Head, bought property during their tour, and then received PCS orders to another state
- Landlords who lived in Maryland previously, moved away, and have been renting their Southern Maryland property as an investment
- Heirs who inherited Maryland property but live in another state
- Out-of-state investors who bought Southern Maryland rental property
If you are a Maryland resident selling your primary home, the withholding does not apply to you. Scroll down to the primary residence section, your situation is likely simpler than you think.
The 2026 Withholding Rate
As of January 1, 2026, Maryland withholds 8.75% of a non-resident individual seller’s gross proceeds at settlement. For LLCs and other entities, the rate is 8.25%.
To put that in real numbers: on a $445,000 sale in Charles County, the settlement agent would withhold roughly $38,900 for an individual non-resident seller. That is a meaningful number at the closing table, especially if it was not expected. Keep in mind this is the withheld amount, not the final tax bill. The actual liability depends on your gain, your basis, and your allowable deductions.
For rental properties, depreciation recapture also factors into the calculation, which can increase the taxable gain beyond what the sale price minus purchase price would suggest. If you have been depreciating a Southern Maryland rental property, that accumulated depreciation gets added back into taxable income in the year of the sale. This is another reason to involve a CPA before closing, not after.
Thinking about selling? Let’s run your actual numbers.
Whether you’re a Maryland resident or out-of-state, the withholding calculation is specific to your deal. I can walk you through what applies to your situation before you get to closing. No sales pitch, just the numbers.
How to Reduce the Withholding Before Closing
Non-resident sellers can apply for a reduced-withholding certificate before settlement. This allows you to request that the Comptroller reduce or eliminate the withholding if your actual tax liability is lower than the standard rate calculation would suggest.
The form is Maryland Form MW506AE. You submit it to the Comptroller’s office with documentation supporting your adjusted basis in the property, anticipated selling costs, and expected gain. The Comptroller reviews the submission and issues a certificate authorizing the settlement agent to withhold a lower amount, or nothing, if the calculation supports a zero-withholding determination.
The most important rule about this process: the Comptroller needs at least 21 days before closing to process the application. If you file two weeks before settlement, you have likely missed the window. This is a mistake that is easy to avoid if you start the conversation early and nearly impossible to fix once you are inside the 21-day window. Start the MW506AE process as soon as you have a signed contract, not the week of closing.
A CPA or tax attorney who handles Maryland non-resident real estate transactions can help you determine whether applying for a reduced certificate makes sense in your situation, and can prepare the documentation the Comptroller needs. The reduced withholding route is worth exploring whenever the calculated gain is meaningfully lower than the gross proceeds, which is most of the time.
What Happens to the Withheld Money
The settlement agent sends the withheld amount to the Maryland Comptroller at or shortly after closing. When you file your Maryland income tax return for the year of the sale, the withholding appears as a credit against your Maryland tax liability.
If you overpaid, meaning more was withheld than you owe, Maryland processes a refund. If your actual liability exceeds what was withheld, you pay the balance with your return. The process mirrors how regular income tax withholding works.
One thing non-resident sellers sometimes miss: you have to file a Maryland return to get the refund. If you moved out of state and assume you no longer have to file in Maryland, you leave that money on the table. Any year in which you sold Maryland property and had money withheld, you have a Maryland filing obligation and likely a refund waiting.
Primary Residence Sellers: A Different Situation
If you are selling a home you used as your primary residence for at least two of the last five years, a different set of rules applies at the federal level. Under IRS Section 121, you can exclude up to $250,000 of gain from federal capital gains tax if you are single, or $500,000 if you are married filing jointly.
Most Southern Maryland sellers who have owned their homes for a reasonable period and are not selling at the peak of a historic run-up will not have gains that approach those thresholds. Most owe nothing in federal capital gains tax. For a full breakdown of how the exclusion works, what the Maryland state tax picture looks like, and what to do if you do not qualify for the full exclusion, I have a detailed guide to capital gains tax on home sales in Maryland that covers the specifics.
The intersection that catches some sellers off guard: even if you qualify for the federal primary residence exclusion, the Maryland non-resident withholding can still apply if you are not a Maryland resident at settlement. The residency test for the withholding is based on where you live at the time of closing, not where you lived when you owned the property. Military families who have PCS’d out of state and are selling a former primary residence may face the withholding even when their gain qualifies for the federal exclusion.
What This Means for Southern Maryland Sellers Specifically
The sellers I work with who ask about the Maryland exit tax most often fall into two categories: military families and out-of-state landlords.
Military families near NAS Patuxent River and Indian Head frequently buy homes during a tour and then PCS to another duty station. Years later, when they decide to sell, they are non-residents under Maryland’s definition. If they lived in the property as their primary residence for at least two years before the PCS, they may still qualify for some or all of the federal exclusion. Active-duty military also have protections under the Servicemembers Civil Relief Act that can extend the residency window in some circumstances, another reason to work with a CPA who knows military tax situations.
Out-of-state landlords selling Southern Maryland rental property face a more straightforward withholding situation: the primary residence exclusion does not apply to rental property, depreciation recapture applies, and the non-resident withholding almost certainly applies. The reduced-withholding certificate route is worth exploring if your basis plus deductions bring the actual gain significantly below the gross proceeds.
If you want to understand your full picture before listing, what you will owe at closing, what the withholding looks like, and what you will actually net, the net proceeds guide walks through every cost you will see at settlement. And if you want an honest cash offer as a starting point before you decide whether to list, I can give you one on the spot for any property in my service area.
For a complete breakdown of what sellers pay at closing in Southern Maryland, including transfer taxes, recordation taxes, and agent commissions by county, see the cost of selling a house in Southern Maryland.
Frequently Asked Questions: Maryland Exit Tax
Is there a Maryland exit tax on home sales?
No. Maryland does not have a formal exit tax. What people call the Maryland exit tax is typically the Maryland non-resident withholding, which requires settlement agents to withhold a portion of a non-resident seller’s gross proceeds at closing. The withheld amount is a prepayment against potential Maryland tax liability, not a separate exit tax. Maryland residents selling Maryland property are not subject to the withholding.
Who has to pay the Maryland non-resident withholding?
The withholding applies to sellers who are not Maryland residents at the time of settlement. This includes out-of-state landlords, military families who have PCS’d to another state, heirs who inherited Maryland property but live elsewhere, and any other non-Maryland resident selling property in the state. Maryland residents selling Maryland property are not subject to the withholding.
What is the Maryland non-resident withholding rate in 2026?
As of January 1, 2026, the rate is 8.75% of gross proceeds for non-resident individual sellers, and 8.25% for LLCs and other entities. The withholding is calculated on the full sale price, not on the net gain. Your actual Maryland tax liability may be lower, in which case you receive a refund of the difference when you file your Maryland return.
Can I reduce the Maryland withholding before closing?
Yes. Non-resident sellers can apply for a reduced-withholding certificate using Maryland Form MW506AE. You submit documentation of your adjusted basis, anticipated selling costs, and expected gain to the Maryland Comptroller. The Comptroller reviews the submission and can authorize the settlement agent to withhold a lower amount. The Comptroller needs at least 21 days before closing to process the application. File as soon as you have a signed contract.
Do I get the Maryland withholding back if I overpaid?
Yes, but you have to file a Maryland income tax return to claim it. The withheld amount appears as a credit on your Maryland return for the year of the sale. If the credit exceeds your actual Maryland tax liability on the sale, Maryland issues a refund for the difference. Non-resident sellers who do not file a Maryland return for the year they sold property lose that refund.
Talk to a Southern Maryland Agent Who Knows the Numbers
If you are a non-resident seller, a military family preparing to sell, or a landlord trying to understand what you will actually net on a Southern Maryland sale, call or text (301) 751-9318. I am James Armel with JPAR Real Estate, licensed in Maryland and Virginia since 2011. I work with sellers across Charles, Calvert, St. Mary’s, Prince George’s, Anne Arundel, and Howard counties and can give you an honest picture of the full cost of selling before you decide whether to list. I can also provide a cash offer on any property in my service area if speed and certainty matter more than maximizing the sale price.
Do You Qualify for a Withholding Exemption?
Many Maryland sellers who expect to pay the withholding are actually exempt. Check each item below. If any apply to your sale, you may owe nothing at closing.
- You are selling your primary residence and lived there at least 2 of the last 5 years
- Your gain is below the federal exclusion ($250,000 single / $500,000 married filing jointly)
- You are still a Maryland resident at the time of closing
- The property is being sold in a 1031 exchange
- The sale results in a net loss or zero gain after costs
Not sure whether you qualify? Fill out the form below with your situation. I will tell you exactly what applies before you get to the closing table.
Selling a Maryland Home and Have Questions About Taxes?
James can walk you through the net proceeds picture before you list. Fill out the form below.
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Four pages. Plain English. Covers the 2026 withholding rates, the primary residence exemption, how to reduce what Maryland holds at closing, and the 7 mistakes that cost sellers thousands. Enter your name and phone number below and I will send it over.
If you are a senior seller, capital gains tax carries additional considerations, including Medicare premium surcharges and the surviving spouse exclusion rule. Read the full guide: capital gains tax for seniors selling a home in Maryland.
Disclaimer: Tax laws, withholding rates, and filing requirements change. The rates and rules described in this post reflect information available as of the publication date and may not reflect future changes by the Maryland Comptroller or the IRS. This post is for informational purposes only and does not constitute legal or tax advice. Consult a qualified CPA or tax attorney before making decisions based on your specific situation.
Sources
- Maryland Comptroller, Non-Resident Real Property Withholding, official guidance on withholding rates, Form MW506AE, and the application process
- IRS Publication 523, Selling Your Home, federal rules on the primary residence exclusion under Section 121
- JPAR Real Estate, James Armel’s brokerage