What Is Maine’s 2.5% Withholding Tax? A Must-Know for Nonresident Sellers
By Karen Udiskey, EXIT Oceanside Realty
As a Trusted Real Estate Advisor, I am frequently asked this question –
"I'm selling my property in Maine but I live out of state. I’ve heard something about a 2.5% withholding tax—what is that all about?"
That’s a great question! If you’re a nonresident selling real estate in Maine, there’s a good chance you’ll run into something called the 2.5% real estate withholding tax—and it can definitely catch people off guard if they’re not expecting it.
Let’s break down what it is, why it exists, and how you can potentially reduce or avoid it altogether.
What Is the 2.5% Withholding Tax in Maine?
When someone who doesn’t live in Maine sells real estate located in Maine, the state requires the buyer to withhold 2.5% of the sale price and send it directly to Maine Revenue Services. This amount is applied as an estimated income tax payment toward any capital gains you might owe to the state. Lauren Schoff, Marketer and Closing Agent with Red Door Title explains that typically the title company will send the 2.5% withholding tax to the Maine Revenue Service as part of the settlement at closing. Schoff states, “This isn’t a fine or penalty—it’s more like a prepayment of a potential tax liability”.
Why Does Maine Require This?
Since the state can’t require nonresidents to file Maine income tax returns as easily as residents, this law helps ensure that any profit made from Maine real estate sales is properly taxed. The withholding gives Maine a way to collect taxes it might otherwise miss.
Does This Apply to Everyone?
Not necessarily. The withholding requirement only kicks in if:
- You are a nonresident of Maine, and
- The property sells for $100,000 or more
If your sale is under $100,000, the withholding doesn’t apply. (This threshold was increased from $50,000 in 2021.)
Can You Reduce or Avoid the Withholding?
Yes, and it’s worth checking! If your actual income tax liability will be less than 2.5% of the sale price, you can apply for a reduction or full exemption by submitting Form REW-5. Kelly Sullivan, Marketer and Closing Agent with Atlantic Coast Title Company explains that you can request a Form REW-5 from the Title Processor or by going online at https://www.maine.gov/revenue/tax-return-forms/real-estate-withholding.
⏰ Important: You must file this form at least 5 business days before the closing date to be considered.
Sullivan stated, “Once submitted, Maine Revenue Services will review your estimated tax and, if they agree the 2.5% is too high, they'll approve a lower amount—or even waive the withholding entirely.”
Here’s an Example-
Danielle DeFelice, Marketer and Closing Agent with Cohen Closing & Title shares this example: “Let’s say you’re a resident of Massachusetts selling your Maine vacation home in Point East Condominiums in Wells for $400,000. The buyer would typically be required to withhold $10,000 (2.5% of the sale price) at closing.
But if your estimated gain is small—let’s say you originally bought the home for $390,000 and didn’t make much profit—your actual Maine income tax might only be around $500. If you file Form REW-5 and get approved, you could reduce or eliminate the withholding altogether and avoid waiting for a big refund later.”
Final Thoughts
This 2.5% withholding surprises many sellers, especially those who aren’t aware of Maine’s unique tax rules for nonresidents. That’s why I always advise my clients to plan ahead and loop in their tax advisor early in the process.
If you’re unsure whether this applies to you—or want help with the forms or timeline—feel free to reach out. I’ll make sure you're informed and prepared well before closing day.
Have questions about selling your Maine property as a nonresident? I’m here to help. Let’s make your closing smooth, informed, and stress-free.
Remember, you’ve got this one life, LIVE it!
📞 (203) 313-4349
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Karen Udiskey - realtor / recruiter / ABR, SRS, SFR, RENE
affiliated with EXIT King Realty in Venice, Florida and EXIT Oceanside Realty in Wells, Maine