- What is Maine real estate withholding?
- Are there any exceptions to the Maine real estate withholding requirement?
- Can the Maine real estate withholding amount be reduced?
- How do I request an exemption or a reduction of the withholding?
- When is the request for an exemption or reduction due?
- What is the Maine real estate withholding based on if the property is sold on an installment sale basis?
- Am I subject to the Maine real estate withholding requirement if the sale of the Maine real property is considered a Section 1031 like-kind exchange?
- Are nonresident individuals selling property in Maine the only individuals subject to the real estate withholding requirement?
- Am I subject to Maine real estate withholding if I placed my Maine home on the market as a Maine resident but don't sell the property until after I have become a nonresident?
- Is the Maine real estate withholding amount considered the final Maine income tax due on the sale of my Maine property?
- What if there is more than one owner of the Maine property being sold?
- How does a partnership operating in Maine determine if it is subject to Maine real estate withholding?
- How do I complete Form REW-1-1040, Form REW-1-1041 or Form REW-1-1120 if there are multiple sellers or the seller is an LLC or partnership?
- Am I required to report the seller's social security number (SSN) or employer identification number (EIN) when filing Form REW-1-1040, Form REW-1-1041 or Form REW-1-1120?
Maine Law requires, at the time of closing, a buyer to withhold 2.5% of the consideration price ($100,000 or more) from any nonresident individual, estate or business. This 2.5% withholding is an estimated tax payment to ensure that a seller complies with Maine income tax responsibilities. The withholding, along with a completed Form REW-1, must be sent to MRS within 30 days of the date of closing. Prior to the closing, a seller may qualify for a reduction in or exemption from the real estate withholding requirement. To read the source of this rule, please visit: http://www.mainelegislature.org/legis/statutes/36/title36sec5250-A.html
Yes. If the seller is a resident of Maine at the time of the sale, if the consideration is less than $100,000 (see note below) or if the capital gain is not recognized for federal or Maine income tax purposes, withholding is not required. See 36 M.R.S. § 5250-A(3) for these and other exceptions that may apply. See question 4 for requesting an exemption from the Maine real estate withholding requirement.
If property is subject to a foreclosure sale and the consideration received for the property does not exceed the debt secured by that property, no Maine real estate withholding is required. Maine Revenue Services does not require a withholding exemption certificate in this case (see 36 M.R.S. § 5250-A(3-A)).
Note: Federally taxable gains on the sale of Maine real property are taxable by Maine, even if the total consideration is less than $100,000.
Yes. The seller may submit a request to the State Tax Assessor to reduce the withholding. If the seller is a nonresident individual or trust and the estimated tax on the realized gain (that is, the gain multiplied by the applicable highest marginal tax rate) is less than 2.5% of the sales price, the lower withholding amount may be allowed. If the seller is a nonresident corporation and 8.93% of the realized gain is less than 2.5% of the sales price, that lower amount may be allowed. Installment sales may also result in a reduced withholding amount (see question 7). If there will be no gain, the seller may apply for an exemption from withholding (see question 4).
Form REW-5 must be completed to request an exemption or a reduction in the real estate withholding amount. Exemptions are generally granted when there is a loss on the sale of the property, a federal exclusion of the gain on the sale of a principal residence, the transaction involves a like-kind exchange, or for other situations resulting in no Maine income tax liability. In addition, reductions in the real estate withholding amount may be authorized for the situations stated in question 3.
A request for exemption or reduction in real estate withholding (Form REW-5) should be filed as soon as the seller and buyer have reached an agreement to transfer property.
Sellers should allow 5 business days for Maine Revenue Services to respond to a Form REW-5 request. The response time will increase if the request is missing required information/documentation. Sellers that are requesting an exemption or reduction within 5 days of closing, or after the closing, should consult with the escrow agent before filing a request to determine if the exemption or reduction certificate would be accepted after closing. The seller becomes ineligible for reduction or exemption once the REW payment is remitted to MRS.
The required withholding amount is still 2.5% of the total sales price. However, the seller may request that a lower amount be withheld. Following the federal guidelines for an installment sale, the seller reports the amount of gain to be realized in the year of the sale. The Maine real estate withholding amount may be based on this first year gain. The taxpayer is then responsible for making estimated tax payments and filing a Maine income tax return yearly until the installment contract is complete.
Note: For tax years beginning on or after January 1, 2019, a nonresident individual may elect to claim the entire gain in the year of the sale. See 2020 Maine Form 1040ME, Schedule 1A instructions for more information.
The 2.5% withholding from total sale price is required, even in a like-kind exchange. Maine Revenue Services follows the federal guidelines on the treatment of IRC Section 1031 like-kind exchanges. Therefore, if no gain is recognized for federal income tax purposes (due to the qualifying like-kind exchange transaction), no gain is recognized for Maine income tax purposes. As such, the seller may request an exemption from the Maine real estate withholding requirement for this property transfer. A copy of the Section 1031 like-kind exchange contract must accompany the request for exemption form. See question 5 for when a request for exemption or reduction is due.
Yes. Although Maine resident individuals are also subject to Maine income tax on gains realized from the sale of real estate, only nonresident individuals are subject to the Maine real estate withholding requirement. Non-Maine businesses and nonresident estates and trusts selling Maine real property are also subject to the Maine real estate withholding requirement.
Yes. If you are a nonresident at the time of the property closing, you are subject to the Maine real estate withholding requirement. If you believe that any portion of the gain is exempt from Maine taxation, see questions 2 and 3.
No. The Maine real estate withholding amount is only an estimate of the income tax due on the gain from the sale of the Maine property. A Maine income tax return must be filed to determine the actual tax due on the gain and whether or not a refund is due to you. In some cases, an additional amount may be due with the Maine income tax return filed.
If the total purchase price for the property exceeds $100,000, the buyer (or the real estate escrow person) will withhold 2.5% from each nonresident seller’s share of the total sales price. The amount withheld is remitted to MRS and the proper amount will be credited to each nonresident’s Maine income tax account.
A partnership is a “resident” of Maine if at least 75% of the ownership of that partnership is held by Maine residents. In that case, the partnership is not subject to the withholding requirement. Limited liability companies (LLCs) are considered partnerships unless otherwise classified for federal income tax purposes.
When property is sold by more than one nonresident seller, the buyer (or the real estate escrow person) must complete a separate form for each nonresident seller receiving proceeds from the sale. For example, if the Maine property is owned by more than one individual, a separate Form REW-1-1040 must be completed for each nonresident individual receiving proceeds from the sale. If the seller is an LLC or partnership, complete a separate Form REW-1-1040, Form REW-1-1041 or Form REW-1-1120 for each nonresident partner receiving proceeds from the disposition. Be sure to complete the appropriate form for each seller. Use REW-1-1040 for individuals and sole proprietors, REW-1-1041 for trusts and estates and REW-1-1120 for corporations.
Yes. REW payments remitted to MRS are allocated and posted to each seller’s account identified by their SSN or EIN. It is therefore necessary to report the SSN(s) or EIN of each individual, estate, trust, or corporation that will claim the income from the sale of property on their federal income tax return. Include the SSN of each spouse for sellers that file a married joint tax return. Do not report a pass-through entity’s EIN number on these forms (see FAQ #13). Forms REW-1-1040, REW-1-1041, and REW-1-1120 that do not include correct taxpayer identification numbers may result in denied claims of real estate withholding.