The Massachusetts Department of Revenue (“DOR”) has implemented a withholding tax on non-resident sellers of real estate when the real property sells for at least $1 million as codified in 830 CMR 62B.2.4.
Who is Affected
Effective Nov. 1, 2025, the Massachusetts Department of Revenue is imposing a tax on non-residents of the Commonwealth when real property is transferred with a gross sales price at, or exceeding, $1 million. The new regulation applies to a non-resident individual, part-year resident or business entity that does not maintain a place of business in the Commonwealth or is not registered with the Secretary of State to do business in the Commonwealth.
How Much Will be Withheld
The Default Tax Rate calculation is four percent of the gross sales price.
The seller can also choose the Alternative Tax Rate of five percent if an individual, and eight percent if a corporation, on the estimated net gain of the sale of real property. This method is primarily utilized because the tax amount tends to be less than the Default Tax Rate. The seller will need to have documentation to prove their net gain (e.g., gross sale price, less seller’s original purchase price of the real property, less improvements to the real property, less brokerage commission, less closing costs).
Please note, regardless of either tax rate mentioned above, if the net capital gains are over $1,083,150.00, for tax year 2025 (the surtax threshold is adjusted annually to keep up with inflation), then the seller is also subjected to an additional four percent surtax to cover the millionaire’s tax.
Exceptions to the Regulation
Pursuant to the current Transferor’s Certification, the following types of sellers are exempt from the withholding requirements under the regulation, but still must provide a Transferor’s Certification at closing:
- Full-year Massachusetts residents (a person is a full-year Massachusetts resident if they have been a resident as defined in M.G.L. c. 62 § 1(f) (i.e. domiciled in Massachusetts or spends more than 183 days in the taxable year with a permanent residence in Massachusetts) from January 1 of the year in which the transfer occurs through the closing
- Pass-through entities (defined as entities whose income, gains, losses, deductions and credits flow through to members for Massachusetts tax purpose, including a partnership, an S corporation, an estate and a trust not taxed at the entity level. Note that for entities disregarded for tax purposes, such as grantor type trusts, single-member limited liability companies, or a trust that does not pass through to its beneficiaries, the gain from the sale are not considered pass through entities in this context.)
- Publicly traded partnerships as defined under 26 U.S. Code § 7704
- Estates of resident decedents
- Resident trusts as defined in M.G.L. c. 62, §10(c)
- Corporations with a continuing Massachusetts business presence, or a member of a combined group where one member of such group has a continuing Massachusetts business presence. A corporation or member of a combined group will have a “continuing Massachusetts business presence” if it (1) filed a Massachusetts income tax return for the tax year prior to the tax year in which the transfer occurs and (2) maintains a place of business in Massachusetts at the time of the transfer
- Organizations qualified under Internal Revenue Code (Code) § 501(c)(3), unless the sale/transfer results in unrelated business taxable income
- Insurance companies
- The U.S. government, Massachusetts or any political subdivision, or their respective agencies
- The Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association or a private mortgage insurance company
- Financial institutions
- Certain real estate investment trusts
Compliance with the Regulation
At closing, the seller’s closing agent, closing attorney or title company will collect the tax and remit the appropriate withholding amount, together with a Nonresident Real Estate Withholding return (“NRW”) to the DOR within 10 days of the closing. The seller is expected to prepare the Transferor’s Certificate and provide any additional documentation to the closing agent, closing attorney or title company. The seller will receive a DOR NRW Statement the following January and can then file a Massachusetts non-resident income tax return (Form 1-NR/PY) to reconcile the actual tax due and potentially receive a refund if too much was withheld.
The regulation may have been revised since this was published, so it is always best to review the regulation when preparing to sell real property within the Commonwealth.
Harris Beach Murtha’s Commercial Real Estate Practice Group regularly tracks legal matters, court decisions and state and federal laws that could affect clients. If you need assistance with handling a real estate transaction or related matters, please reach out to attorney Joshua L. Woods at (860) 240-6195 and jlwoods@harrisbeachmurtha.com; or the Harris Beach Murtha attorney with whom you most frequently work.
This alert is not a substitute for advice of counsel on specific legal issues.
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