Does Maine recognize 1031 exchanges?
Yes. Maine Revenue Services says that because Maine follows the federal treatment of like-kind exchanges, gain deferred federally is also deferred for Maine. A Maine 1031 exchange that works for the IRS works for Maine.
That deferral is worth a lot in Maine. The state taxes gains as ordinary income at up to 7.15%, and for tax years from 2026 it adds a 2% surcharge on Maine taxable income above $1.5 million on a joint return or $1 million on a single return. A large sale that would have pushed you over the surcharge line can stay under it if most of the gain is deferred.
Federal rules that control a Maine exchange
Maine sets no deadlines of its own. You have 45 days from the sale to identify replacement property in writing, and 180 days, or your tax return due date if earlier, to close on it. Both properties must be real property held for investment or business use, and a qualified intermediary must hold the sale proceeds so you never have access to them.
Buy a replacement of equal or greater value and reinvest all of the net cash to defer all of the gain. Cash you keep, or debt you shed without replacing it, is boot and is taxed by the IRS and Maine alike. Our guide to 1031 exchange rules covers identification rules and boot in detail, and the main 1031 exchange guide explains the whole process.
Maine withholding at closing and how an exchange affects it
When a nonresident sells Maine real estate for $100,000 or more, the buyer must withhold 2.5% of the total price and remit it with Form REW-1 within 30 days. That applies to nonresident individuals, estates and businesses, and a partnership or LLC counts as a Maine resident only if Maine residents own at least 75% of it.
A 1031 exchange does not switch withholding off on its own. Maine Revenue Services says withholding still applies, but the seller may request an exemption by filing Form REW-5 with a copy of the Section 1031 exchange contract. If you plan to keep some cash, the same form can be used to ask for a reduction when your maximum Maine tax on the gain is less than 2.5% of the price.
- File REW-5 as soon as the sale is agreed, through the Maine Tax Portal if you can.
- Allow at least five business days for a response.
- Give the certificate Maine issues to the buyer or escrow person before closing.
- After closing, you can no longer get an exemption or reduction, so any withholding taken has to be recovered on your Maine return.
Exchanging a building held in an LLC
Many Maine apartment buildings are owned by an LLC taxed as a partnership, and that changes who files what. For withholding, the LLC is a Maine resident only if Maine residents own at least 75% of it on the transfer date. If it falls short, the buyer withholds 2.5% of each nonresident member’s share of the proceeds and files a separate REW-1 for each one, giving the entity’s name, EIN and type.
The exchange itself has to be done by the same taxpayer that sold, which for a partnership means the LLC, not its members one by one. An REW-5 exemption request for a partnership exchange should therefore come from the LLC with its own exchange contract. If members want to split up or cash out, plan that with your CPA well before the sale, since a change in who owns the property can affect whether the exchange qualifies.
Does Maine regulate qualified intermediaries?
Yes. Maine is one of nine states with a law regulating exchange facilitators, along with California, Colorado, Connecticut, Idaho, Nevada, Oregon, Virginia and Washington. Maine’s rules are in Title 10, chapter 212-C, enacted by Public Law 2009, chapter 61, and effective September 12, 2009.
Under 10 M.R.S. section 1396, a person may not do business as an exchange facilitator in Maine without a license. The law covers anyone who, for a fee, takes on a seller’s contract rights or takes title as a qualified intermediary, accommodation titleholder or qualified trustee, and anyone who keeps a Maine office or advertises these services in Maine. The administrator is the Superintendent of Consumer Credit Protection. Attorneys, CPAs, financial institutions and licensed real estate brokers are among those exempt.
- A fidelity bond of at least $250,000, or a deposit of cash, securities or letters of credit of at least $250,000, or all exchange funds held in a qualified escrow or trust.
- Errors and omissions coverage of at least $100,000, or an equal deposit.
- Exchange funds invested under the prudent investor standard, not commingled with operating accounts and not lent to affiliates.
- Notice to clients within 10 business days of a change in control, posted on the facilitator’s website for at least 90 days.
- A right for any person harmed to bring a civil action.
Choosing an intermediary for a Maine exchange
Ask to see the intermediary’s Maine license and proof of its bond and E&O coverage before you sign the exchange agreement. Then ask how your money will be held: in a separate account or a pooled one, who must sign to move it, and whether you will get statements. Maine’s $250,000 bond minimum is smaller than many exchange balances, so the account structure protects you more than the bond does on a large sale.
Your intermediary cannot be someone who acted as your agent in the past two years, such as your attorney, CPA, employee or broker. Our guide to choosing a 1031 qualified intermediary covers fees and contract terms.
Does Maine have a 1031 clawback?
We found no Maine rule like the tracking filings California, Massachusetts, Montana and Oregon require when you exchange into another state. Maine Revenue Services’ guidance on exchanges speaks only to deferral following federal treatment and to withholding.
Deferred gain is still deferred, not forgiven. It becomes taxable when you later sell the replacement in a taxable sale, so keep the exchange paperwork with the replacement property’s records and ask your CPA which states could tax that future sale.
Common 1031 exchange paths for Maine owners
Maine to Maine is common for owners trading up within the state, for example from several small buildings in Lewiston or Biddeford to one larger property in the Portland area. If you are a Maine resident, a residency affidavit at closing avoids withholding entirely.
Maine to out of state suits owners moving their equity to a lower-tax state or a larger market. A nonresident seller doing this should file REW-5 early, since a missed exemption means 2.5% of the price is held back.
Out of state into Maine works the same as any federal exchange. As the buyer of the replacement, you pay half of Maine’s $2.20 per $500 transfer tax, and for transfers on or after November 1, 2025 an additional $3.80 per $500 applies to value above $1,000,000. Maine Revenue Services says the whole tax is imposed half on the seller and half on the buyer.
Worked example: a nonresident’s Maine exchange
An owner living in Massachusetts sells a 16-unit building in Bangor for $2,000,000. After $100,000 of selling costs and with an adjusted basis of $750,000, the gain is $1,150,000. The $900,000 loan is repaid, the owner takes $100,000 in cash, and the intermediary receives the other $900,000, which goes into a $2,100,000 replacement with a new $1,200,000 loan.
The $100,000 is boot, so $100,000 of gain is recognized and $1,050,000 is deferred. At Maine’s 7.15% top rate, the Maine tax on the boot is about $7,150 and the Maine tax deferred is about $75,075.
Without an exemption or reduction, the buyer withholds $50,000, which is 2.5% of $2,000,000. Because the owner’s maximum Maine tax on the recognized gain, about $7,150, is far below $50,000, the owner can file REW-5 before closing with the exchange contract and ask for the withholding to be reduced. If Maine approves, far less cash is tied up until the owner files a Maine nonresident return.
| Item | Amount |
|---|---|
| Sale price | $2,000,000 |
| Total gain | $1,150,000 |
| Cash boot taken | $100,000 |
| Gain deferred | $1,050,000 |
| Maine tax on boot (7.15%) | $7,150 |
| Maine tax deferred (7.15%) | $75,075 |
| Withholding with no REW-5 (2.5%) | $50,000 |
Timeline tips for a Maine exchange
- Sign the exchange agreement and assign the sale contract before closing.
- Confirm the intermediary’s Maine license and coverage at signing.
- File REW-5 with the exchange contract as soon as the price is agreed, at least five business days before closing.
- Budget for Maine’s transfer tax on both the sale and the purchase if the replacement is in Maine.
- If you sell late in the year, file an extension so your return due date does not cut the 180 days short.
Selling a Maine apartment building as part of an exchange
Skyline buys apartment buildings with five or more units in Maine. We buy directly, close on your timeline, and can work inside 1031 deadlines. We work with your intermediary on the contract assignment, and we can set a closing date that gives you time to get your REW-5 certificate and line up a replacement.
For the tax you would owe without an exchange, see Maine capital gains tax on real estate. The 1031 exchange calculator runs the federal side with your own numbers.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
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