The question comes up at almost every listing appointment: “Am I going to owe capital gains tax when I sell?”
For most Southern Maryland homeowners, the answer is no. The rules around capital gains tax on home sale in Maryland are set up so that ordinary homeowners rarely pay anything. But for sellers who have owned a long time or saw significant appreciation, gains can be real money. This page explains exactly how it works, what Maryland charges by county, and how to calculate your exposure before you close.
This page covers general information only. Consult a licensed CPA before making any tax decisions related to your home sale.
What this page covers
- Whether you personally owe capital gains tax in Maryland
- The $250,000 / $500,000 primary residence exclusion and when it applies
- Federal long-term capital gains rates for 2026
- Maryland state + county capital gains rates by county
- How to calculate your adjusted cost basis before closing
- Nonresident withholding rules and how to apply for an exemption
- Special situations: inherited homes, military PCS sellers
- What to do if you think you may owe capital gains tax in Maryland
How capital gains tax on home sale in Maryland works — and why most sellers owe nothing
The IRS gives primary homeowners a significant exclusion that eliminates capital gains tax on the majority of home sales. If you’ve lived in your home as your primary residence for at least 2 of the last 5 years, you can exclude:
- $250,000 of capital gain if you file as single
- $500,000 of capital gain if you’re married filing jointly
This is the Section 121 exclusion. It resets every two years, and it eliminates any capital gains tax owed for the vast majority of primary home sellers in Maryland. Most Southern Maryland homeowners who have lived in their home for at least 2 years will owe nothing.
Example: You bought your home for $300,000 and sell it for $700,000. Your gain is $400,000. As a married couple, the $500,000 exclusion covers it entirely. You owe nothing — not to the IRS, not to Maryland.
When do you owe capital gains tax when selling a house in Maryland?
Capital gains becomes an issue in Maryland — meaning you actually owe money — when any of the following apply:
- Your gain exceeds $250,000 (single) or $500,000 (married filing jointly)
- You haven’t lived in the home as your primary residence for 2 of the last 5 years — rental property, investment property, or second home
- You’ve already used the exclusion on another home sale in the past two years
If any of these apply, you’ll owe federal capital gains tax plus Maryland state and county income tax on the taxable amount. Understanding exactly which rules apply to your situation is the first step before you list.
What is the federal capital gains tax rate on a home sale?
For a primary home held more than one year, the IRS uses preferential long-term capital gains rates. For 2026:
| Taxable Income (Married Filing Jointly) | Federal Rate |
|---|---|
| Up to $98,900 | 0% |
| $98,901 – $613,700 | 15% |
| Over $613,700 | 20% |
These thresholds apply to your total taxable income, not just the gain. If you have wages plus a capital gain, the combined total determines your bracket.
High earners: If your modified adjusted gross income exceeds $250,000 (married filing jointly), an additional 3.8% Net Investment Income Tax (NIIT) applies to the lesser of your net investment income or the amount over that threshold.
Short-term gains (home held one year or less) don’t get preferential rates. They’re taxed as ordinary income at rates up to 37% federally.
Does Maryland have a separate capital gains tax rate?
No. Unlike the federal system, Maryland taxes capital gains as ordinary income — the same brackets as wages. There is no separate preferential rate. Maryland capital gains tax at the state level is your income tax rate applied to any taxable gain above the exclusion. That means taxes can stack in Maryland: federal rate + Maryland state rate + county rate, all applied to the same taxable gain.
Maryland state income tax tops out at 5.75% for income over $250,000 (single) or the equivalent married bracket. On top of that, you owe county income tax based on where you live. For the counties James serves:
| County | 2026 Local Rate | Combined MD + Local (top bracket) |
|---|---|---|
| Charles County | 3.03% | 8.78% |
| Calvert County | 3.20% | 8.95% |
| St. Mary’s County | 3.20% | 8.95% |
| Prince George’s County | 3.20% | 8.95% |
| Anne Arundel County | 2.70%–3.20%* | 8.45%–8.95% |
| Howard County | 3.20% | 8.95% |
*Anne Arundel uses tiered rates by income level. Most sellers will fall in the middle tier (2.94%).
These combined rates apply only to the portion of your gain that exceeds the primary residence exclusion — which, again, most primary home sellers never reach.
How is my capital gain on a home sale calculated?
Your gain is: Sale Price − Adjusted Cost Basis
Your cost basis is not just what you paid. It includes:
- Original purchase price (including closing costs you paid at purchase)
- Capital improvements made during ownership — new roof, addition, HVAC replacement, full kitchen remodel, etc.
Routine repairs and maintenance don’t count, but improvements that add value or extend the useful life of your home do. The larger your adjusted basis, the smaller your taxable gain — and the lower your Maryland capital gains tax will be.
Your selling costs — agent commission, transfer taxes, other seller closing costs — reduce your net proceeds but are generally not added to your basis. Properly documenting your improvements is one of the most effective legal ways to reduce your capital gains tax in Maryland. Your CPA can advise on the correct treatment.
What does capital gains tax on a Maryland home sale actually cost? A real example.
Scenario 1 — Primary residence, married couple:
You bought a home in La Plata 18 years ago for $250,000 and sell today for $550,000. You’ve lived there the entire time.
- Gross gain: $300,000
- Married exclusion: $500,000
- Taxable gain: $0
- Tax owed: nothing
Scenario 2 — Same house, but you rented it out the last 3 years:
You no longer qualify for the exclusion. Same property value, very different tax picture.
- Taxable gain: $300,000
- Federal capital gains tax (15% bracket): ~$45,000
- Maryland state tax (5.75%): ~$17,250
- Charles County local tax (3.03%): ~$9,090
- Estimated total tax: ~$71,340
That’s a real number — and exactly why capital gains deserves attention before you close in Maryland, not after. A CPA may be able to reduce your exposure through documented improvements, proper basis calculation, and timing decisions. After closing, your options narrow significantly.
What if I don’t live in Maryland full-time — do I still owe at closing?
Yes — Maryland requires withholding at closing for nonresident sellers. For 2026, the withholding rate is 8.75% of the total sale price for individual sellers. That’s not of the gain — it’s of the full sale price, held at closing and applied against your eventual Maryland tax liability.
If your gain falls below the exclusion threshold, you can file Form MW506AE at least 21 days before your closing date to apply for a full or partial exemption. Your title company will coordinate this. Don’t wait until closing week to address it.
Are there special rules for inherited or military-owned homes?
Inherited homes receive a stepped-up cost basis — your basis is set at the home’s fair market value on the date of the original owner’s death, not what they originally paid. This often dramatically reduces or eliminates capital gains tax for inherited Maryland properties.
Example: A parent paid $80,000 for a home now worth $350,000. You inherit it and sell for $360,000. Your gain is only $10,000 — not $280,000.
Military sellers may qualify for an extended residency period under the Servicemembers Civil Relief Act. If PCS orders required you to leave a home you own, you may be able to count that time toward the 2-of-5-year primary residence test. This is worth discussing with a CPA if you’re a military seller who couldn’t stay in your home due to orders.
What should I do before I sell if I think I have a taxable gain?
Three things:
- Calculate your adjusted basis. Dig up your original settlement statement plus records of any major improvements you made. Every dollar of documented improvement reduces your gain.
- Talk to a CPA — before closing, not after. Timing and structure decisions made before the sale can reduce your tax exposure. After closing, your options narrow significantly.
- Know your net proceeds. Once you understand your capital gains exposure in Maryland, I can show you exactly what you’ll walk away with after all costs — agent commission, transfer taxes, and any applicable tax. Call or text me at (301) 751-9318 for a free, no-pressure net proceeds analysis.
If you’re still working out what your home is worth, that’s a good starting point. From there, I can build you a full net proceeds picture.
About the Author: James Armel
James Armel is a licensed real estate agent and investor who has served Southern Maryland since 2011. Licensed in Maryland and Virginia (License #676208), James operates with JPAR Real Estate across Charles, Calvert, St. Mary’s, Prince George’s, Anne Arundel, and Howard County. Learn more about James →
Two Licensed Pros on Every Transaction
Aimee is my licensed executive assistant — born and raised in Maryland, with over a decade of real estate experience. Once you go under contract, she tracks every deadline, coordinates with title and lenders, and makes sure nothing slips through the cracks. Two licensed sets of eyes on every detail of your sale.
Questions about your sale? Call or text James directly: (301) 751-9318
Frequently Asked Questions — Capital Gains Tax on Home Sale in Maryland
Disclaimer: This page is for general informational purposes only and does not constitute tax or legal advice. Tax laws and rates change; the information here reflects general guidance as of 2026. Consult a licensed CPA or tax attorney before making decisions related to your home sale.
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