Massachusetts Capital Gains Tax on Real Estate

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

Does Massachusetts have a capital gains tax?

Yes. Massachusetts capital gains tax on real estate held more than a year is 5% of the gain, the same flat rate the state applies to wages, interest and most other income. Gains on property held a year or less are taxed at 8.5%, according to the Department of Revenue’s published rate table.

The part sellers tend to miss is the surtax. Voters approved it in 2022, and it adds 4% on taxable income above a threshold that is adjusted for inflation each year. For tax year 2026 the threshold is $1,107,750, up from $1,083,150 for 2025. A building sale that produces a seven-figure gain can push a seller’s income well past that line in a single year, so part of the gain is taxed at 9% instead of 5%.

Massachusetts capital gains tax rates for 2026

Massachusetts has no graduated brackets. Its rates depend on the type of gain, and the surtax sits on top of all of them once taxable income passes the threshold.

• Residents pay the surtax on all taxable income above the threshold. Nonresidents pay it on the Massachusetts-source portion, which includes gain on Massachusetts real estate.
• The threshold was $1,083,150 for 2025 and rises with inflation each year, so check the figure for the year you close.

How Massachusetts and federal tax add up

You pay both, figured separately. Federal long-term gain is taxed at 0%, 15% or 20%, and Revenue Procedure 2025-32 sets the 2026 start of the 20% rate at $545,500 of taxable income for a single filer and $613,700 for a joint return. The share of your gain that equals depreciation you claimed 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 $200,000 for a single filer or $250,000 for a joint return. Add Massachusetts at 5% plus the surtax, and a high-income seller can face a combined top rate on part of the gain of about 37.8%: 25% federal on the depreciation portion, 3.8% NIIT and 9% to the state.

The state tax is deductible federally only as an itemized state and local tax deduction, which is capped, so on a sale this size nearly all of the Massachusetts tax is a true added cost.

Withholding when a nonresident sells Massachusetts real estate

Since November 1, 2025, a nonresident who sells Massachusetts real estate for $1,000,000 or more has tax withheld at closing under regulation 830 CMR 62B.2.4. The withholding agent is usually the closing attorney, title company or escrow agent, and if no one handles the closing the buyer takes on the job.

The default amount is 4% of the gross sales price, plus another 4% on the amount above the surtax threshold. A seller can elect a second method instead: 5% of the estimated net gain, plus the 4% surtax on any amount above the threshold. Corporate sellers use 4% of the price or 8% of the estimated gain. The agent files Form NRW electronically through MassTaxConnect within 10 days of closing, even when nothing is withheld, and the seller claims the amount as a credit on the Massachusetts return.

• The $1,000,000 test applies to the whole sale, so two co-owners selling a $1.2 million building are both covered.
• Exempt sellers include full-year residents, pass-through entities and publicly traded partnerships, resident estates and trusts, and corporations with a continuing Massachusetts business presence. Each must sign a Transferor’s Certification.
• Without a Transferor’s Certification, the agent withholds on the gross price.
• DOR waived penalties for closings from November 1 to December 31, 2025, while agents adjusted.

Selling through an LLC or partnership

A building owned by an LLC taxed as a partnership is exempt from the nonresident withholding, because pass-through entities are on the exempt list. The gain still flows to the members, and each member reports a share on a Massachusetts return.

That exemption can catch out-of-state members off guard. Nothing is held back at closing, yet a member living in New Hampshire or Florida still owes Massachusetts 5% on the share of gain, plus surtax if that member’s Massachusetts-source income passes the threshold. Get each member’s expected share to your CPA before closing so estimated payments are made on time.

Depreciation recapture in Massachusetts

Massachusetts taxes the depreciation part of a long-term real estate gain at the same 5% as the rest. The DOR’s Schedule D instructions treat amounts from Part II of federal Form 4797, including recapture under Sections 1245 and 1250 and gains on Section 1231 property, as Massachusetts capital gains.

So the federal split between 25% recapture and 15% or 20% capital gain changes your IRS bill but not your Massachusetts bill. The surtax still applies to the whole gain once your income is over the threshold.

Basis can differ in some cases. For personal income tax, Massachusetts follows the Internal Revenue Code as in effect on January 1, 2024, with listed exceptions, and the fiscal 2026 supplemental budget (St. 2026, c. 101, signed June 12, 2026) delays conformity to the new federal Section 168(n) bonus depreciation for production property until 2027. That provision rarely touches apartment buildings, but ask your CPA whether any federal change since 2024 gives your property a different Massachusetts basis.

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

A single filer sells a 12-unit building in Worcester for $2,000,000 and pays $110,000 in selling costs, so the amount realized is $1,890,000. She bought it for $1,050,000 and has taken $380,000 of depreciation, for an adjusted basis of $670,000. Her gain is $1,220,000: $380,000 of unrecaptured Section 1250 gain and $840,000 of long-term capital gain. She has $300,000 of other taxable income, her MAGI is already over $200,000, and the building has a $950,000 mortgage.

Federal tax: the $380,000 of Section 1250 gain at the 25% maximum is $95,000. Her income plus that gain already passes $545,500, so the full $840,000 is taxed at 20%, or $168,000. The 3.8% NIIT on $1,220,000 is $46,360. Federal total: $309,360.

Massachusetts tax: 5% of $1,220,000 is $61,000. Her taxable income with the sale is $1,520,000, which is $412,250 over the $1,107,750 threshold, so the surtax is $16,490. The state total is $77,490, and the combined bill is $386,850, about 32% of the gain. After repaying the loan she nets $940,000 before tax and about $553,150 after.

The same sale by a nonresident

If the same owner lived in Connecticut, the closing attorney would withhold under the default method $80,000 (4% of $2,000,000) plus $35,690 (4% of the $892,250 by which the price exceeds $1,107,750), or $115,690.

If she elected the net gain method, withholding would be $61,000 (5% of the $1,220,000 estimated gain) plus $4,490 (4% of the $112,250 of gain above the threshold), or $65,490. Either way, the amount is a prepayment. She files a Massachusetts nonresident return and the final tax depends on her Massachusetts-source income, so the elected method mostly changes how much cash she gets at the table.

How a 1031 exchange changes the Massachusetts tax

A valid 1031 exchange defers Massachusetts tax as well as federal tax, because the state follows Section 1031. In the example, buying a replacement worth at least $1,890,000 and reinvesting all $940,000 of net cash would defer the whole $386,850.

Deferral also helps with the surtax. Spreading gain recognition over different years, or deferring it entirely, can keep income under the threshold in any one year, which an outright sale cannot.

Massachusetts keeps a claim on deferred gain from nonresidents. Under 830 CMR 62B.2.4, a nonresident seller in an exchange signs a Transferor’s Certification that acknowledges the deferred gain and consents to Massachusetts jurisdiction to collect the tax when the gain is realized. Massachusetts is one of the states with a clawback of this kind, along with California, Montana and Oregon. Our page on the 1031 exchange in Massachusetts walks through withholding on boot and the certification.

Ways Massachusetts sellers lower the tax

Timing and deferral do most of the work, since the 5% rate itself has no exceptions for real estate.

• A 1031 exchange into another investment property, which defers both the 5% tax and the surtax.
• An installment sale, which spreads gain over several years and can keep each year’s income under the surtax threshold.
• Holding the building past one year, so gain is taxed at 5% instead of 8.5%.
• Documenting every capital improvement, which raises basis and cuts the gain taxed at both the state and federal level.

Selling a Massachusetts apartment building

Skyline buys apartment buildings with five or more units in Massachusetts, from Boston and Worcester to Lowell, Springfield and the Merrimack Valley. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you plan an exchange, we can set closing for the date that fits your replacement search and work with your intermediary on the assignment.

For the carrying costs a buyer looks at, see our page on the property tax rate in Massachusetts, and for the tenant rules that come with an occupied building, Massachusetts landlord-tenant law for apartment owners. The capital gains tax calculator runs the federal side for your own figures.