Maine capital gains tax on real estate is ordinary income tax: the gain is taxed at the same 5.8%, 6.75% and 7.15% rates as wages, and starting in 2026 a 2% surcharge applies to Maine taxable income above $1,000,000 single or $1,500,000 joint. A 1031 exchange in Maine defers that state tax plus the federal tax on the gain, and it is also the most common reason nonresident sellers qualify to skip the state's 2.5% withholding at closing.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Taxed as ordinary income: 5.8%, 6.75% and 7.15% (top bracket above $129,750 joint in 2026) |
|---|---|
| Long-term capital gains treatment | No state preference; new 2% surcharge on 2026 income above $1M single or $1.5M joint |
| Nonresident withholding at closing | 2.5% of the full price when the price is $100,000 or more |
| Withholding form | Buyer remits on Form REW-1; seller requests exemption or reduction on Form REW-5 at least 5 business days before closing |
| Transfer or conveyance tax (a 1031 does not defer it) | $2.20 per $500, split equally; extra $3.80 per $500 on value above $1,000,000 since November 1, 2025 |
| Clawback on out-of-state replacement property | No Maine annual tracking form; Maine-source gain can still be taxed when recognized |
| Conforms to Section 1031 | Yes; Maine income starts from federal adjusted gross income |
Table of contents
- How much is capital gains tax on real estate in Maine?
- Maine's new 2% surcharge on large gains
- Maine tax on a $300,000 gain: worked example
- Maine real estate withholding (REW) and the REW-5 exemption
- Maine real estate transfer tax
- Section 1031 conformity and clawback in Maine
- Moving into or out of Maine
- Where 1031 exchanges happen in Maine
- Federal 1031 rules that apply in Maine
- Common Maine 1031 exchange mistakes
- Start your Maine 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Maine?
Maine does not separate capital gains from other income. Your gain is added to wages, rents and everything else and taxed through the regular brackets. For 2026, Maine Revenue Services publishes these schedules:
| Filing status | 5.8% up to | 6.75% up to | 7.15% above |
|---|---|---|---|
| Single | $27,400 | $64,850 | $64,850 |
| Married filing jointly | $54,850 | $129,750 | $129,750 |
For most people selling a rental or commercial building, the gain lands almost entirely in the 7.15% bracket. There is no Maine exclusion or deduction for long-term gains, and no local income tax in any Maine city or town.
Depreciation recapture gets no special Maine rate either. The part of your gain that the IRS taxes at up to 25% as unrecaptured §1250 gain is simply more ordinary income in Maine. Our depreciation recapture calculator estimates the federal side.
Maine's new 2% surcharge on large gains
Beginning with tax years that start on or after January 1, 2026, Maine adds a 2% surcharge to Maine taxable income above $1,000,000 for single filers and $1,500,000 for married couples filing jointly. It is a flat add-on to the 7.15% rate, so the top marginal Maine rate on income over those lines is effectively 9.15%.
Real estate sales are exactly the kind of one-time event that can push an ordinary household across the threshold. A couple with $200,000 of normal income who sells a Portland apartment building with a $1.6 million gain would owe the surcharge on roughly $300,000 of it, about $6,000 extra, on top of 7.15% on the whole gain. A full 1031 keeps that gain off the 2026 return. A partial exchange with cash out creates boot that is taxed in the year of sale, so model it first with the boot calculator.
Maine tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on investment property, $100,000 of it unrecaptured §1250 depreciation, a married couple filing jointly already in the top federal bracket and already above Maine's $1,500,000 surcharge line, so every dollar is taxed at 7.15% plus 2%.
| Tax | Math | Amount |
|---|---|---|
| Unrecaptured §1250 gain (depreciation) | 25% x $100,000 | $25,000 |
| Remaining long-term gain | 20% x $200,000 | $40,000 |
| Net investment income tax | 3.8% x $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Maine income tax | 7.15% x $300,000 | $21,450 |
| Maine 2% surcharge (only above $1.5M joint) | 2% x $300,000 | $6,000 |
| Total deferred by a full 1031 | $76,400 + $27,450 | $103,850 |
A couple in the 7.15% bracket but under the surcharge line would defer $97,850 instead. Try your own numbers in the 1031 exchange calculator or weigh a straight sale in the capital gains vs. 1031 comparison.
Maine real estate withholding (REW) and the REW-5 exemption
When a nonresident sells Maine real estate for $100,000 or more, the buyer must withhold 2.5% of the total consideration and send it to Maine Revenue Services with Form REW-1. In practice the closing agent handles it. On a $900,000 camp in Kennebunkport that is $22,500 held back from the seller.
The withholding is only a prepayment, credited on your Maine nonresident return, but it is real cash that you would otherwise roll into the replacement property. Maine Revenue Services says plainly that REW is required even in a like-kind exchange unless you get an exemption. The fix:
- File Form REW-5, the request for exemption or reduction, as soon as the purchase and sale agreement is signed.
- Attach a copy of your Section 1031 exchange agreement with the qualified intermediary.
- Allow at least 5 business days for processing. Once the sale closes, you are no longer eligible for an exemption or reduction.
If you are a foreign person, federal FIRPTA withholding is separate and can be much larger; see FIRPTA for foreign sellers.
Maine real estate transfer tax
Maine imposes a real estate transfer tax under 36 M.R.S. section 4641-A. The base rate is $2.20 for each $500 of value, and the tax is imposed half on the seller and half on the buyer, so each side pays $1.10 per $500. For transfers on or after November 1, 2025, an additional $3.80 per $500 applies to the portion of value above $1,000,000, also split between the parties.
| Sale price | Base tax (total) | Additional tax (total) | Seller's half |
|---|---|---|---|
| $800,000 | $3,520 | $0 | $1,760 |
| $1,500,000 | $6,600 | $3,800 | $5,200 |
| $3,000,000 | $13,200 | $15,200 | $14,200 |
A 1031 exchange does not defer or reduce transfer tax. You pay your half on the sale, and you pay the buyer's half on the replacement purchase if it is also in Maine. Confirm with your title company whether any statutory exemption applies to your deal before you budget.
Section 1031 conformity and clawback in Maine
Maine computes income starting from federal adjusted gross income, so gain deferred under Section 1031 is deferred for Maine too. Maine does not have an annual reporting form like California's FTB 3840 that tracks out-of-state replacement property.
That does not mean the gain is forgotten. Gain from Maine real estate is Maine-source income for a nonresident, and a Maine resident is taxed on all income. If you are a resident when the replacement property is sold, Maine taxes the whole deferred gain. If you have moved away, expect Maine to take the position that the part attributable to the Maine property is still Maine-source. Keep Form 8824 and the closing records permanently.
Moving into or out of Maine
Maine sees a lot of cross-border ownership. Massachusetts and New York residents own a large share of coastal and lake property, and they are the sellers most likely to hit REW. Maine retirees often exchange a rental portfolio into Florida, where there is no state income tax on the future sale, or into New Hampshire. Before moving, read how the destination treats your deferred gain on our pages for New Hampshire, Massachusetts and Florida.
Where 1031 exchanges happen in Maine
Portland, South Portland and Westbrook account for most multifamily and commercial exchanges, with Lewiston-Auburn and Bangor offering higher yields. The coast from York to Bar Harbor produces a steady flow of vacation rental exchanges, where the owner must be able to show the property was held for rental rather than personal use. Lake properties in the Belgrades and Sebago region follow the same rule. Timberland and farmland can also be exchanged for other real property, including buildings. We do not have Maine city guides yet, so ask us about local activity.
Federal 1031 rules that apply in Maine
You have 45 days after closing to identify replacement property in writing and 180 days to acquire it. A qualified intermediary must hold the money from sale to purchase. Buy equal or greater value and replace your mortgage balance to defer all gain. Test your list with the 45-day identification validator, run the 1031 calculator, and review the 1031 exchange guides.
Common Maine 1031 exchange mistakes
- Filing the REW-5 after closing. Maine will not grant an exemption once the deal closes; you wait for a refund instead.
- Forgetting the exchange agreement. The REW-5 needs a copy of the 1031 exchange contract attached.
- Missing the new transfer tax tier. On a $2 million replacement purchase, your share of the additional tax alone is $3,800.
- Exchanging a family camp. A cottage used mostly by the family is personal property for tax purposes and may not qualify.
- Taking cash out in 2026 without checking the surcharge. Boot can push income over $1.5 million joint.
Start your Maine 1031 exchange
Contact us when you sign the purchase and sale agreement so the exchange agreement is ready for your REW-5 filing. Start your exchange online or schedule an intro call with our team.
Frequently asked questions
How can I avoid capital gains tax on real estate in Maine?
Use a 1031 exchange to reinvest the proceeds in like-kind investment property through a qualified intermediary. That defers Maine income tax, the new 2% surcharge and federal tax. Owning until death can eliminate the gain through a basis step-up.
What is Maine's capital gains tax rate?
Maine taxes capital gains as ordinary income at 5.8%, 6.75% or 7.15%. For 2026 a 2% surcharge also applies to taxable income above $1,000,000 single or $1,500,000 joint.
Does Maine withhold tax when a nonresident sells property?
Yes. The buyer withholds 2.5% of the total price when the consideration is $100,000 or more, and remits it on Form REW-1.
How do I get the Maine REW withholding waived in a 1031 exchange?
File Form REW-5 with a copy of your 1031 exchange contract as soon as you have a signed agreement, and at least 5 business days before closing. No exemption is available after closing.
How much is Maine's real estate transfer tax?
It is $2.20 per $500 of value, split equally between seller and buyer, plus $3.80 per $500 on value above $1,000,000 for transfers since November 1, 2025. A 1031 exchange does not defer it.
Does Maine claw back gain if I buy replacement property in another state?
Maine has no annual clawback form, but Maine-source gain from Maine real estate can still be taxed when the deferred gain is recognized.
Sources
- Maine Revenue Services: 2026 individual income tax rate schedules (revised)
- Maine Revenue Services: Real estate withholding
- Maine Revenue Services: Real estate withholding FAQ
- 36 M.R.S. section 4641-A: Real estate transfer tax rate
Related: New Hampshire, Massachusetts, Vermont and all 50 states.
This page is general information, not tax or legal advice. Talk with your CPA or attorney about your own Maine sale before you act.
