A 1031 exchange in Maryland lets you sell investment real estate and reinvest in like-kind property while deferring the tax on the gain. The federal rules apply the same way everywhere. Maryland adds two things worth knowing: a combined state and local tax on the gain that runs higher than the headline state rate, and a substantial nonresident withholding step at closing. We act as your qualified intermediary, holding the proceeds and handling the documentation so the exchange holds from sale to closing.
Table of contents
- How much is capital gains tax on real estate in Maryland?
- Maryland's nonresident withholding
- Maryland 1031 exchange rules and timeline
- 1031 exchanges across Maryland markets
- Common Maryland 1031 exchange mistakes
- Start your Maryland 1031 exchange
- Frequently asked questions
How much is capital gains tax on real estate in Maryland?
Maryland's top state rate is 5.75%, but Maryland is unusual in that every county and Baltimore City levies its own local income tax, up to roughly 3.2%, on the same income. So the combined Maryland rate on a property gain can approach 9% depending on where you live. That sits on top of the federal tax an exchange also defers:
- Long-term capital gains at 0%, 15%, or 20%, with the 20% rate applying above $545,500 of taxable income for single filers and $613,700 for married couples filing jointly in 2026.
- The 3.8% Net Investment Income Tax above $200,000 of modified adjusted gross income for single filers, $250,000 for married couples.
- Depreciation recapture, taxed as unrecaptured Section 1250 gain at up to 25%.
- Maryland's combined state and local rate on the gain.
Maryland conforms to Section 1031, so a properly structured exchange defers both the federal and the Maryland tax. The full federal framework is in our main 1031 exchange guide.
Maryland's nonresident withholding
When a nonresident sells Maryland real estate, the settlement agent withholds 8% from an individual seller, or 8.25% from an entity, and remits it on Form MW506NRS. It is a prepayment against the Maryland tax, not an extra tax, but on a large sale it is a significant amount held back at the table. In a 1031 exchange where there is no boot, you apply for a full or partial exemption by filing Form MW506AE with the Comptroller at least 21 days before closing, supported by your intermediary's documentation. If that is not done in time, the 8% is withheld and then recovered on your Maryland return, which both ties up capital and can interfere with funding the purchase, so the timing on the MW506AE matters.
Maryland 1031 exchange rules and timeline
The federal deadlines govern, and they are strict:
- 45-day identification. Identify replacement property in writing within 45 days of the sale.
- 180-day closing. Close within 180 days of the sale, or by your return due date including extensions, whichever is earlier.
- No constructive receipt. Proceeds go to your qualified intermediary, never to you.
- Equal or greater value and debt. Reinvest all net proceeds and match or exceed the relinquished value and debt, or the shortfall is taxable boot.
- Same taxpayer. The entity that sold must be the entity that buys.
1031 exchanges across Maryland markets
Maryland's exchange activity divides between the Washington and Baltimore orbits. The DC suburbs of Montgomery and Prince George's counties carry strong multifamily and commercial demand tied to the federal government and the regional economy. Baltimore and its surroundings add multifamily and, increasingly, industrial and logistics property, anchored by the Port of Baltimore and large distribution developments along the I-95 corridor. Frederick and the central counties extend that logistics demand, and the Eastern Shore, including Ocean City, carries second-home and investment property. Maryland property tax is moderate and set at the state and county level, so confirm the local rate for any replacement deal.
Common Maryland 1031 exchange mistakes
- Missing the 21-day MW506AE deadline, so the 8% nonresident withholding is taken and tied up.
- Modeling only the 5.75% state rate and overlooking the local county income tax on the gain.
- Taking receipt of the proceeds, or missing the 45-day identification window.
- Trading down or pulling cash out, which creates taxable boot.
Start your Maryland 1031 exchange
Set up your exchange before your relinquished property closes, and file the MW506AE in good time, so the proceeds are not withheld and never reach your hands. Contact our team to begin, or to talk through a specific deal.
Frequently asked questions
How much is capital gains tax on real estate in Maryland?
Maryland taxes the gain at a top state rate of 5.75% plus a local county income tax of up to about 3.2%, for a combined rate that can approach 9%, on top of federal capital gains tax.
Is there nonresident withholding when I sell Maryland property?
Yes. The settlement agent withholds 8% from an individual or 8.25% from an entity on Form MW506NRS. In a 1031 with no boot, you apply for an exemption on Form MW506AE at least 21 days before closing.
Does Maryland conform to federal 1031 rules?
Yes. A properly structured exchange defers both the federal and the Maryland tax.
Do I need a qualified intermediary for a Maryland 1031 exchange?
Yes. The intermediary must hold the proceeds and facilitate the exchange, and supports the MW506AE exemption. Engage one before the relinquished property closes.
This page is general information, not tax or legal advice. We act as a qualified intermediary and do not provide tax or legal advice. State, local, and federal rules and thresholds change; confirm current figures with your tax advisor.
