Does Maryland have a capital gains tax?
Yes, in two layers. Maryland capital gains tax on real estate starts with the regular state income tax, which treats the gain like wages at rates from 2% to 6.5%. Then, for tax years from 2025 on, the Budget Reconciliation and Financing Act of 2025 (Chapter 604) adds an extra 2% of net capital gain when your federal adjusted gross income is over $350,000.
Residents also pay a county income tax, or the Baltimore City tax, on the same income. For 2026 those local rates run from 2.25% in Worcester County to 3.30% in Dorchester and Kent counties, and most of the large jurisdictions, including Baltimore City, Baltimore County, Howard, Montgomery and Prince George’s, charge 3.20%.
Maryland income tax brackets for 2026
Maryland’s brackets are written into Tax-General Article section 10-105 and are not adjusted for inflation, so the 2025 schedule carries into 2026. The two top brackets, 6.25% and 6.5%, are new from tax year 2025. On a building sale, most of the gain usually falls in those two.
- Short-term and long-term gains are taxed at the same Maryland rates. The holding period only matters federally.
- The 2025 law also set the standard deduction at $3,350 single and $6,700 joint and cuts itemized deductions by 7.5% of federal AGI above $200,000.
| Rate | Single (Maryland taxable income) | Married filing jointly |
|---|---|---|
| 2% to 4% | First $3,000 | First $3,000 |
| 4.75% | $3,000 to $100,000 | $3,000 to $150,000 |
| 5% | $100,000 to $125,000 | $150,000 to $175,000 |
| 5.25% | $125,000 to $150,000 | $175,000 to $225,000 |
| 5.5% | $150,000 to $250,000 | $225,000 to $300,000 |
| 5.75% | $250,000 to $500,000 | $300,000 to $600,000 |
| 6.25% | $500,000 to $1,000,000 | $600,000 to $1,200,000 |
| 6.5% | Over $1,000,000 | Over $1,200,000 |
The 2% tax on net capital gain
The new tax is 2% of the net capital gain included in your Maryland adjusted gross income, charged on top of the regular bracket tax. The Comptroller’s Technical Bulletin 58 (December 29, 2025) says the $350,000 threshold is tested on federal AGI regardless of filing status, so a married couple filing jointly gets the same $350,000 line as a single filer.
A sale of an apartment building will almost always cross that line by itself. The listed exclusions do not help most landlords: they cover a primary residence that sells for less than $1,500,000, retirement accounts, certain livestock, land under a conservation or agricultural easement, Section 179 property and affordable housing owned by a nonprofit.
Two details matter for investors. Corporations are not subject to the 2%. A partnership or LLC does not pay it at the entity level either; the gain flows through on the Schedule K-1 and each member with federal AGI over $350,000 pays it on their own return.
How Maryland and federal tax stack on a sale
You pay both, figured separately. Federally, long-term gain is taxed at 0%, 15% or 20%, and under Revenue Procedure 2025-32 the 20% rate starts at $613,700 of taxable income on a joint return and $545,500 for a single filer in 2026. Gain equal to the depreciation you took is unrecaptured Section 1250 gain, taxed at up to 25%, and the 3.8% net investment income tax applies once modified AGI passes $250,000 joint or $200,000 single.
Maryland then taxes the whole gain at its brackets, adds 2% of the net capital gain and, for residents, adds the county rate. A Baltimore County couple in the top brackets pays roughly 6.25% to 6.5% state, 2% surtax and 3.20% county, about 11.5% to 11.7% at the margin. State and local income tax is deductible federally only as a capped itemized deduction, so on a sale this size most of it gives no federal benefit.
Maryland withholding when a nonresident sells
When a nonresident sells Maryland real property, tax must be paid when the deed is recorded, and the clerk will not record the deed without it. For sales after June 30, 2025, the rate is 8.75% for individuals and fiduciaries and 8.25% for entities, according to the Comptroller’s Tax Alert of April 2026. The individual rate is the top state rate of 6.5% plus the lowest county rate of 2.25%.
The rate applies to the total payment, which Tax-General section 10-912 defines as the net proceeds actually paid to the seller: the price less the mortgage paid off at closing and the seller’s settlement costs. A seller with a large loan therefore has less withheld than the headline rate suggests.
An entity is a nonresident entity if it was not formed under Maryland law and is not registered with the State Department of Assessments and Taxation, so a Delaware LLC that never registered in Maryland can face 8.25% withholding.
- Withholding does not include the 2% tax on net capital gain. The Comptroller tells nonresidents who expect to owe it to make an estimated payment.
- A nonresident selling for $1,500,000 or more cannot apply for a tentative refund on Form MW506R and must file a full annual return to get any excess back.
- Form MW506AE asks the Comptroller for a certificate of full or partial exemption. It must arrive at least 21 days before closing.
Depreciation recapture in Maryland
Maryland has no separate recapture rate. The depreciation portion of your gain is taxed at the same 2% to 6.5% brackets as everything else, so the split between recapture and capital gain changes your federal bill but not your Maryland bracket tax.
It can change the 2% surtax. The surtax applies to net capital gain, and on a building held more than a year the whole gain, including the part from straight-line depreciation, is generally long-term gain under Section 1231 federally. Technical Bulletin 58 does not address recapture directly, so we have treated the full gain as subject to the 2% in the example below. Ask your CPA to confirm, especially if a cost segregation study moved some cost into personal property, where recapture is ordinary income.
Worked example: selling a $2M apartment building in Maryland
A married couple living in Towson sells a 24-unit building in Baltimore County for $2,000,000 and pays $120,000 in selling costs. They bought it for $1,200,000 and have claimed $400,000 of depreciation, so the adjusted basis is $800,000 and the gain is $1,080,000: $400,000 of unrecaptured Section 1250 gain and $680,000 of other long-term gain. They have $300,000 of other taxable income, their MAGI is already over $250,000, and the building carries a $900,000 loan.
Federal tax: the $400,000 of Section 1250 gain stacks on the $300,000 of other income, so the first $103,550, up to the top of the 24% bracket at $403,550, is taxed at 24% and the rest at the 25% maximum, or $98,965 in all. The $680,000 of capital gain sits above $700,000 of income, so all of it is taxed at 20%, or $136,000. The 3.8% NIIT on $1,080,000 is $41,040. Federal total: $276,005.
Maryland tax: on top of $300,000 of other income, the gain fills the 5.75% bracket to $600,000 ($17,250), the 6.25% bracket to $1,200,000 ($37,500) and puts $180,000 in the 6.5% bracket ($11,700), for $66,450 of bracket tax. The 2% tax on $1,080,000 is $21,600, and Baltimore County’s 3.20% local tax is $34,560. Maryland total: $122,610.
Combined, the couple owes $398,615, or about 36.9% of the gain. After paying off the loan they net $980,000 in cash before tax and about $581,385 after it. For simplicity this assumes Maryland taxable income equals federal taxable income; your return will differ somewhat.
| Item | Amount |
|---|---|
| Sale price | $2,000,000 |
| Adjusted basis | $800,000 |
| Total gain | $1,080,000 |
| Federal tax (24%/25%, 20% and 3.8% NIIT) | $276,005 |
| Maryland bracket tax | $66,450 |
| Maryland 2% tax on net capital gain | $21,600 |
| Baltimore County income tax (3.20%) | $34,560 |
| Total tax | $398,615 |
The same sale by an out-of-state owner
If the same couple lived in Florida, the clerk would collect 8.75% of the $980,000 paid to them at closing, which is $85,750. Because the price is $1,500,000 or more, they could not ask for a tentative refund and would file a Maryland nonresident return instead.
They would skip the Baltimore County tax but pay Maryland’s special nonresident tax in its place, and they would still owe the 2% on their Maryland gain. The $85,750 withheld does not cover the 2% layer, so plan an estimated payment for it.
How a 1031 exchange changes the Maryland tax
A 1031 exchange defers Maryland tax as well as federal tax. Maryland starts from federal adjusted gross income, and Technical Bulletin 58 says gain deferred under Section 1031 is not in federal AGI, so it is outside both the bracket tax and the 2% surtax. In the example, reinvesting the full $980,000 of net proceeds into a replacement of at least $1,880,000 would push all $398,615 into the future.
Maryland has no clawback rule like California’s or Oregon’s, so you can buy the replacement in Pennsylvania, Delaware or Texas without an annual Maryland filing. Nonresident sellers who exchange can use Form MW506AE, with a letter from the qualified intermediary, to cut withholding at recording. Any cash boot is still taxed. Our guide to the 1031 exchange in Maryland covers the certificate, timing and paths out of the state.
The capital gains tax calculator and the depreciation recapture calculator run the federal side with your own numbers.
Ways Maryland sellers reduce the tax
Because the surtax switches on at a single AGI line, timing matters more in Maryland than in most states.
- A full 1031 exchange, which keeps the gain out of federal AGI and therefore out of the 2% tax.
- An installment sale, which spreads gain over years; it helps most if it keeps a year’s federal AGI at or under $350,000, which is rare on a building sale.
- Holding until death, when heirs receive a stepped-up basis for federal and Maryland purposes.
- Documenting every capital improvement, since each dollar of basis cuts gain taxed at up to about 11.7% by Maryland and the county, plus the federal rate.
Selling a Maryland apartment building
Skyline buys apartment buildings with five or more units in Maryland, from Baltimore and Towson to Silver Spring, Hyattsville and Frederick. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you are exchanging, we can set a closing date that leaves room for your MW506AE application and the identification period.
For carrying costs a buyer will weigh, see our page on the property tax rate in Maryland, and for the tenant rules that come with the building, Maryland landlord-tenant law for apartment owners.
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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