Maine Capital Gains Tax on Real Estate

By Skyline Capital Investments · Updated October 26, 2026 · 7 min read

Does Maine have a capital gains tax?

Yes, through its individual income tax. Maine has no separate capital gains tax and no reduced rate for property you held a long time, so a gain on an apartment building is taxed at the same rates as wages or rent. For 2026, Maine Revenue Services lists three rates: 5.8%, 6.75% and 7.15%.

The top rate starts low. A joint return reaches 7.15% at $129,750 of Maine taxable income, and a single return at $64,850. On a building sale, almost all of the gain lands in that top bracket, and a big enough sale now triggers the surcharge as well.

Maine income tax brackets for 2026

The thresholds below come from the Maine Revenue Services 2026 individual income tax rate schedules, revised May 20, 2026. Single filers and married people filing separately use the same brackets.

The 2% Maine surcharge on income over $1 million

For tax years beginning on or after January 1, 2026, Maine adds a 2% surcharge to the part of Maine taxable income above $1,000,000 for single filers, $750,000 for married people filing separately, and $1,500,000 for joint filers, heads of household and surviving spouses. Maine Revenue Services says the thresholds will be adjusted for inflation starting in 2027.

The surcharge matters most to people who sell a building. A couple with a normal income year may never come near $1.5 million, but a single sale with a seven-figure gain can push them over for that one year. The top Maine rate on the slice above the threshold is then 9.15%.

Timing can help. An installment sale that spreads the gain over two or more years can keep each year below the threshold, and so can a partial 1031 exchange that defers part of the gain.

How Maine and federal tax stack on a sale

You pay both, figured separately. Federal long-term capital gain is taxed at 0%, 15% or 20%, and Revenue Procedure 2025-32 puts the 2026 start of the 20% rate at $613,700 of taxable income on a joint return and $545,500 for a single filer. Gain equal to the depreciation you took on the building is unrecaptured Section 1250 gain, taxed federally at up to 25%.

The 3.8% net investment income tax applies on top once modified adjusted gross income passes $250,000 for a joint return or $200,000 for a single filer, unless the rental is part of a real estate professional’s trade or business.

Maine then taxes the whole gain at its own rates. It does not care how the federal return splits the gain between recapture and capital gain, because Maine taxes both as ordinary income.

Maine real estate withholding for nonresident sellers

When a nonresident sells Maine real estate for $100,000 or more, the buyer must withhold 2.5% of the total price and send it to Maine Revenue Services with Form REW-1 within 30 days of closing. The real estate escrow person is also liable for the withholding. With several sellers, the buyer withholds 2.5% of each nonresident seller’s share.

A Maine resident avoids withholding by signing a residency affidavit at closing. An entity is treated differently from a person: a partnership or LLC taxed as a partnership counts as a Maine resident for this purpose only if Maine residents hold at least 75% of it on the transfer date. For other pass-through sellers, a separate REW-1 is filed for each nonresident partner receiving proceeds.

• Sales for less than $100,000 are exempt from withholding, although the gain is still taxable.
• Maine Revenue Services can issue a certificate of exemption when no tax is due on the gain or adequate security is given.
• A reduced amount is available on Form REW-5 when the most you could owe Maine on the gain is less than 2.5% of the price. For an individual, that maximum is 7.15% of the gain plus 2% of any gain above the surcharge threshold. For a corporation it is 8.93% of the gain.
• File REW-5 as soon as buyer and seller agree and allow at least five business days. Once the sale closes, you can no longer get an exemption or reduction.

Maine transfer tax when you sell

Maine’s real estate transfer tax is $2.20 for each $500 of value, split half to the seller and half to the buyer under 36 M.R.S. section 4641-A. For transfers on or after November 1, 2025, an additional $3.80 per $500 applies to the part of the value above $1,000,000, under Public Law 2025, chapter 388.

On a $2,000,000 sale, the base tax is $8,800 and the additional tax is $7,600, for $16,400 in all. Maine Revenue Services says the tax is imposed half on the grantor and half on the grantee, so the seller’s share is $8,200. The transfer tax is a selling cost and reduces your gain.

Depreciation recapture in Maine

Maine taxes depreciation recapture as ordinary income at 7.15% for most sellers, the same rate it applies to the rest of a large gain. There is no Maine version of the federal 25% cap on unrecaptured Section 1250 gain.

The more common Maine issue is basis. A Maine Revenue Services briefing on the 2025 federal tax law notes that Maine has seldom conformed to federal bonus depreciation. If you claimed bonus depreciation after a cost segregation study, your Maine depreciation schedule may not match your federal one, and your Maine gain and recapture on a sale can differ from the federal figures. Ask your CPA for the Maine schedule before you price the tax.

Worked example: selling a $2M apartment building in Maine

A married couple filing jointly sells a 20-unit building in Lewiston for $2,000,000 and pays $100,000 in selling costs. They bought it for $1,100,000 and have claimed $350,000 of depreciation, so their adjusted basis is $750,000 and their gain is $1,150,000: $350,000 of unrecaptured Section 1250 gain and $800,000 of long-term capital gain. They have $450,000 of other taxable income, and for simplicity we treat their Maine taxable income as equal to federal. The building carries a $900,000 loan.

Federal tax: $350,000 at the 25% maximum is $87,500. Their capital gain sits on top of $800,000 of other income and recapture, above the $613,700 line, so all $800,000 is taxed at 20%, or $160,000. The 3.8% NIIT on $1,150,000 is $43,700. Federal total: $291,200.

Maine tax: the whole $1,150,000 is taxed at 7.15%, or $82,225. Their Maine taxable income is $1,600,000, which is $100,000 over the $1,500,000 joint threshold, so the surcharge adds $2,000. Maine total: $84,225. Combined tax is $375,425, about 33% of the gain. After repaying the loan, they net $1,000,000 before tax and about $624,575 after.

The same sale by a nonresident

If the couple lived in Massachusetts and owned the building in their own names, the buyer would withhold $50,000 at closing, which is 2.5% of $2,000,000. Their maximum Maine tax on the gain under the REW-5 formula is 7.15% of $1,150,000, or $82,225, with no surcharge piece because the gain itself is below the $1,500,000 joint amount. That is more than $50,000, so a REW-5 reduction request would not lower the withholding. They would file a Maine nonresident return, claim the $50,000 as a credit and pay the rest. If they held the building in an LLC taxed as a partnership with no Maine owners, the LLC would be a nonresident seller and the buyer would withhold 2.5% of each nonresident member’s share of the proceeds.

How a 1031 exchange changes the Maine tax

A valid 1031 exchange defers Maine tax as well as federal tax. Maine Revenue Services says that because Maine follows the federal treatment, gain deferred federally is also deferred for Maine. In the example above, buying a replacement of at least $1,900,000 and reinvesting all $1,000,000 of net cash would push the full $375,425 into the future.

Real estate withholding still applies to an exchange, but you can ask for an exemption by filing Form REW-5 with a copy of your Section 1031 exchange contract before closing. Maine also regulates exchange facilitators, so check that your intermediary holds a Maine license. Our page on the 1031 exchange in Maine covers both. Cash you keep in a partial exchange is boot and is taxed by both governments. The capital gains tax calculator runs the federal side for your own figures.

Ways Maine sellers cut or delay the tax

Maine gives no rate break for holding a building longer, so the useful tools are about timing and basis.

• A full 1031 exchange, which defers both the Maine and federal tax.
• An installment sale, which spreads the gain and can keep each year under the $1.5 million joint surcharge threshold.
• Records of every capital improvement, such as roofs, boilers and unit renovations, since each dollar added to basis comes off a gain taxed at 7.15% plus the federal rate.
• Holding until death, so heirs receive a stepped-up basis for federal and Maine purposes.
• Checking your residency status before closing. A seller who is a Maine resident on the transfer date signs an affidavit and avoids withholding, while one who has already moved away does not.

Selling a Maine apartment building

Skyline buys apartment buildings with five or more units in Maine, from Portland and Lewiston to Bangor and Augusta. We buy directly, close on your timeline, and can work inside 1031 deadlines. If the surcharge is a concern, we can talk about closing dates and structure that fit the plan you work out with your CPA.

For the rules a buyer inherits with your tenants, see Maine landlord-tenant law for apartment owners, and for the annual carrying cost, our page on the property tax rate in Maine.