Maryland Nonresident Withholding: 8% on an Out-of-State Seller's $500,000 Home Sale

When an out-of-state owner sells Maryland real property, the closing agent must withhold Maryland income tax up front and pay it to the Clerk of the Circuit Court before the deed can be recorded. For sales closing in 2026 the rate is 8.75% for individuals, estates and trusts (8.25% for business entities) — but it is applied to your net proceeds, not the full sale price. On a $500,000 sale that nets $400,000, an individual seller has $35,000 withheld on Form MW506NRS, which you later reconcile (and usually get most of back) on a Maryland nonresident return, Form 505.

What “Maryland nonresident withholding” actually is

Maryland, like several states, does not trust nonresident sellers to voluntarily file a state return and pay tax on a capital gain after they have moved the money out of state. So it collects the tax at the source: the settlement agent withholds a percentage of the sale and remits it to the Clerk of the Circuit Court at the same moment the deed is presented for recording. No payment, no recording. This is governed by the Tax-General Article of the Annotated Code of Maryland and administered through Form MW506NRS — the “Maryland Return of Income Tax Withholding for Nonresident Sale of Real Property.”

This is a state withholding regime and is completely separate from federal FIRPTA withholding, which applies only when the seller is a foreign person (a non-U.S. tax resident). A seller who lives in Virginia or Florida is a U.S. person — FIRPTA does not touch them — but they are still a nonresident of Maryland, so Maryland's state withholding applies. A foreign seller of Maryland property can face both: 15% FIRPTA to the IRS and 8.75% to Maryland.

Who counts as a “nonresident”

You are subject to MW506NRS withholding if, on the date of transfer, you are a nonresident individual (you don't file as a Maryland resident) or a nonresident entity. Maryland defines a nonresident entity narrowly: one that is not formed under Maryland law more than 90 days before the sale, and is not registered with the Department of Assessments and Taxation to do business in Maryland more than 90 days before the sale. Resident sellers, and the gain on a principal residence that fully qualifies for the §121 exclusion, are generally exempt — but the exemption has to be claimed correctly, not assumed.

Why Maryland withholds on net proceeds, not the sale price

This is the single most misunderstood point, and it usually works in the seller's favor. Maryland does not apply 8.75% to your gross sale price. Form MW506NRS Line 8 walks the closing agent through a short computation that strips the sale price down to what you actually walk away with — the “total payment” — and applies the rate to that.

The logic: the statute is trying to approximate the tax on your gain, and your mortgage payoff and selling costs are dollars you never gained and never pocket. So Line 8 subtracts selling expenses and the debt secured by the property before the rate is applied. Here is the exact ladder from the form:

Source: 2026 Form MW506NRS, Line 8, Comptroller of Maryland. (official PDF)

Worked example: an out-of-state seller's $500,000 Maryland home

Crucially, the $35,000 is not Dana's final Maryland tax. It is a deposit against whatever her actual Maryland tax on the sale turns out to be. If her real gain is modest — say her adjusted basis was high because she bought near the top and made improvements — her true tax could be a fraction of $35,000, and the rest comes back to her. That is what the next two sections are about.

Form MW506NRS at closing: how the clerk collects it before recording

You, the seller, rarely fill out MW506NRS yourself. The “person responsible for closing” — your title company or settlement attorney — prepares it. There are four copies:

• Copy A & Copy B are filed with the deed at the Clerk of the Circuit Court, with a check or money order for the withheld amount. The Clerk will not record the deed without them.
• Copy C is handed to you, the seller, at closing. Keep it. You will need it to claim the credit later and to attach to any refund application.
• Copy D is retained by the settlement agent.

The Clerk then forwards the collected tax and Copy A to the Comptroller (reported on the companion Form MW508NRS by the 21st of the following month). The mechanism is deliberately friction-loaded: tying the withholding to recordation is what makes it nearly impossible for a nonresident to slip out of the state tax net.

Form MW506R: applying for an early ("tentative") refund

If too much was withheld and you don't want to wait until you file your annual return, Maryland lets nonresidents apply for a tentative refund on Form MW506R — the “Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents.” It estimates your actual tax on the sale and refunds the excess early.

The MW506R is optional but tightly time-boxed. For a 2026 closing, every one of these must be true or the application is denied:

• The sale occurred in 2026.
• You waited at least 60 days after the tax was paid to the Clerk before filing.
• You file before December 1, 2026 (so closings on or after October 1 cannot use this form — they reconcile on the year-end return instead).
• You are an individual, fiduciary, or C corporation — not a pass-through entity or a partner/member/shareholder of one (a sole-member LLC owner can qualify with proof).
• The sale price was less than $1,500,000.

How the MW506R math works

The MW506R rebuilds your real gain and compares the tax on it to what was withheld. Continuing Dana's example, suppose her documented adjusted basis (purchase price + capital improvements − depreciation) was $330,000 against a $460,000 net-of-expenses proceed figure:

So Dana could recover roughly $20,125 months before filing her annual return, instead of leaving it parked with the state. The Comptroller independently verifies the figures against the settlement statement, deed and depreciation schedule you attach (Copy C of MW506NRS is required), and its determination is final and not appealable — so document everything.

Reconciling the credit on the Maryland nonresident return (Form 505)

Whether or not you filed an MW506R, the deal isn't truly closed until you file a Maryland nonresident income tax return, Form 505, for the year of sale. This is non-negotiable: even if you took an early refund, Maryland requires you to file the year-end return, report your income, and settle up.

On Form 505 you compute your actual Maryland tax on the gain (and any other Maryland-source income), then claim the amount withheld on MW506NRS Line 8i as an estimated income-tax payment — that is exactly how the Comptroller's own instructions tell nonresident individuals to claim it. The flow is:

• If you took no early refund: your full $35,000 shows up as estimated tax paid; your real tax (e.g. $14,875) is netted against it; the difference comes back as a refund on the 505.
• If you already took the $20,125 tentative refund: you report the sale, claim only the credit you have not yet received, and pay any extra tax if your final numbers are higher than the MW506R estimate.

Entities claim it differently: C corporations on Form 500, fiduciaries on Form 504, and pass-throughs on Form 510 (allocated to nonresident owners) — in each case the withholding from MW506NRS Line 8i is claimed as an estimated payment. Claiming it on the wrong line is a common reason the credit gets denied.

Official sources

• 2026 Form MW506NRS — Maryland Return of Income Tax Withholding for Nonresident Sale of Real Property (Comptroller of Maryland)
• 2026 Form MW506R — Application for Tentative Refund (Comptroller of Maryland)
• Comptroller of Maryland — forms & MW506AE exemption certificate
• Maryland Comptroller releases 2026 nonresident real-property withholding forms (Bloomberg Tax)