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Maryland

A 1031 exchange in Maryland starts three weeks before closing.

Maryland withholds from nonresident sellers unless the Comptroller has certified an exemption, and for an exchange that application, with a letter from your intermediary, has to arrive at least 21 days before closing.

Updated September 30, 2026 · Reviewed by onezero3one professional staff on September 30, 2026

If you do not live in Maryland and you sell Maryland investment property, the closing agent withholds 8.75% of your payment (8.25% for an entity) unless you hold a Comptroller's certificate of exemption. For a 1031 exchange you can apply for one, but the application, including a letter from your qualified intermediary, must reach the Comptroller at least 21 days before closing.

onezero3one acts as qualified intermediary for exchanges of Maryland property, subject to a review of each file before an exchange agreement is signed. We work with your closing agent and tax advisor; we do not give tax or legal advice.

What is specific to this state

The federal rules in IRC §1031 decide whether an exchange qualifies. The items below are state requirements that sit alongside them at closing or on the return. Each links to the official source it was checked against; confirm the current version with your closing agent and tax advisor before relying on it.

State items for an exchange (researched September 30, 2026)
IssueWhat appliesUsually handled bySource
Withholding at recording (nonresident sellers)Maryland withholds 8.75% of the seller's total payment for nonresident individuals, estates and trusts, and 8.25% for nonresident entities, on sales on or after July 1, 2025. The closing agent reports it on Form MW506NRS and pays it to the Clerk of the Circuit Court when the deed is recorded.
Nonresident sellers; residents certify residency instead.		Closing agent, at recordingComptroller of Maryland, Form MW506NRS (2026) and Tax Alert on the rate change
Checked September 30, 2026
Claiming the 1031 exemptionA nonresident exchanger applies to the Comptroller on Form MW506AE, checking the box for a tax-free exchange under §1031. The application must include a letter signed by the qualified intermediary naming the seller, describing the property, confirming the exchange, and stating whether there is boot and how much. Everything must be received at least 21 days before closing, and the Comptroller's decision is final.
Nonresident sellers in a 1031 exchange; boot remains subject to withholding.		Seller applies, with the qualified intermediary's letter; the certificate goes to the settlement agentComptroller of Maryland, Form MW506AE and instructions (2026, rev. 12/25)
Checked September 30, 2026
Transfer and recordation taxesMaryland charges a 0.5% state transfer tax on deeds, plus county recordation tax and, in many counties, a county transfer tax. The exemption lists contain no exchange exemption, so each deed in an exchange is taxed; the contract decides who pays.
Every deed; county rates vary.		Closing agent, under the contract's allocationMd. Code, Tax-Property § 13-203(a)(1) (transfer tax rate); § 12-103(b)(1) (county recordation rates); § 12-108 and § 13-207 (exemptions), retrieved 2026-09-30
Checked September 30, 2026

The 21-day clock nonresident sellers miss

Form MW506AE, the application for a certificate of full or partial exemption, has a box for a tax-free exchange under §1031. The Comptroller's instructions require, with the application, a letter signed by the qualified intermediary that:

  • names the seller or sellers;
  • describes the property;
  • states that the intermediary is acting for the seller in a §1031 exchange of that property; and
  • states whether there is boot, and if so how much.

The form and every required document must be received at least 21 days before the closing date, and applications without a closing date are not processed. The Comptroller's decision is final. In practice this means the exchange agreement, and the intermediary's letter, need to be in place about a month before a Maryland closing, which is earlier than most exchangers expect.

Any boot you expect to receive, cash taken out or debt not replaced, stays subject to withholding, so the letter should state it accurately.

If there is no certificate at closing

The closing agent files Form MW506NRS and pays the withholding to the Clerk of the Circuit Court when the deed is recorded. The deed is not recorded without the payment unless an exception, such as the certificate, applies. Withheld tax is generally claimed on your Maryland return, but in the meantime it is not available to reinvest in the exchange. Ask your tax advisor how recovery would work for your return.

Transfer and recordation taxes still apply

Maryland's state transfer tax is 0.5% of consideration, and counties add recordation tax and often a county transfer tax. None of the exemption lists covers exchanges, so both your sale deed and your purchase deed carry these taxes as usual; your contract decides who pays them.

State income tax

Maryland starts from federal adjusted gross income and has no adjustment for §1031, so deferred gain is deferred for Maryland too. Since 2025, individuals with federal adjusted gross income over $350,000 also owe an additional 2% on net capital gains, which matters for any gain you do recognize.

Timeline for a nonresident's Maryland sale

  1. About 30 days before closing: sign the exchange agreement; the intermediary prepares its letter.
  2. At least 21 days before closing: the MW506AE and the letter reach the Comptroller.
  3. At closing: the certificate goes to the settlement agent; the contract is assigned and the buyer notified; proceeds go to the intermediary.
  4. Day 45 and day 180: identification and purchase, as in any exchange. The deadline calculator gives both dates.

Questions Maryland sellers ask

I live in Virginia and am selling a Maryland rental. Will Maryland withhold if I am doing a 1031?

Yes, unless the Comptroller has issued an exemption certificate before closing. Apply on MW506AE, with the intermediary's letter, at least 21 days ahead.

What does Maryland need from the intermediary?

A signed letter naming you, describing the property, confirming the §1031 exchange, and stating any boot.

Are transfer taxes waived for an exchange?

No. State transfer tax and county taxes apply to each deed.

Related

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