Overview
The proposed withholding rules on sales or exchanges of real estate generally require a withholding agent to withhold personal income tax or corporate excise, as applicable, on a non-resident seller’s capital gain from the sale or exchange of Massachusetts real property when the gross sales price is $1,000,000 or more. Non-resident sellers include individuals and business corporations with no continuing Massachusetts business presence. DOR has issued a proposed regulation, 830 CMR 62B.2.4, that explains the withholding requirements in detail.
Frequently Asked Questions
When will the withholding requirements go into effect?
The proposed regulation provisions are effective for real estate closings that occur on or after June 1, 2025.
NOTE: This requirement will not go into effect on June 1, 2025. DOR anticipates it will go into effect later in 2025. Non-resident sellers may still have to make an estimated tax payment under the current rules.
What are the new withholding requirements?
Generally, a withholding agent (usually the closing attorney or title company) will be required to withhold a certain amount of tax on behalf of the seller at the time of the sale of real estate. The amount withheld will be calculated based on the net gain unless the seller certifies to the withholding agent that they are exempt from withholding or that a lesser amount of tax is due.
If the seller is subject to the personal income tax, the tax rate will be 5%, plus an additional 4% on the amount of the seller’s net gain that exceeds the surtax threshold. If the seller is subject to the corporate excise, the tax rate will be 8%.
For every sale or exchange of Massachusetts real property for $1,000,000 or more, each seller must complete a Transferor’s Certification and give it to the withholding agent on or before closing. On the Transferor’s Certification, the seller must certify the net gain amount, as well as attest to any applicable exemptions from, or reductions to, the withholding requirement.
The withholding agent will be required to file a withholding return (Form NRW: Nonresident Real Estate Withholding) and remit the amount collected electronically to DOR within 10 days of the closing. If no withholding is required, the withholding agent will file Form NRW reporting zero tax due. The withholding agent may rely in good faith on the information provided in the Transferor’s Certification.
The withholding agent is required to submit the Transferor’s Certification from each seller with Form NRW. Form NRW and the Transferor’s Certification are required for every sale of Massachusetts real property for $1,000,000 or more. The withholding agent is also required to attach the HUD statement when submitting the Form NRW.
Who is required to serve as the withholding agent?
The withholding agent is the person who is responsible for closing a real estate transaction. In many cases the withholding agent will be a closing attorney, escrow company, or title company involved in the real estate transaction. The withholding agent can also be any other person who receives or disburses the money (or other consideration) for the real estate transaction.
What happens if there is no withholding agent?
If there is no representative responsible for closing the real estate transaction (e.g., a closing attorney) and the only parties involved in a real estate transaction are the seller and buyer, the buyer will be required to act as the withholding agent and will be responsible for filing the Form NRW and Transferor’s Certification, and collecting and remitting the withholding amount to DOR.
How should the withholding agent file the Form NRW and any Transferor’s Certification, and remit the withholding amount?
The withholding agent must file the Form NRW and Transferor’s Certification and pay the withholding amount electronically using MassTaxConnect within 10 days after the closing.
What if there is more than one seller?
If there is more than one seller, the amount of withholding from each seller must be determined separately. However, the determination of whether the gross sales price is $1,000,000 or more is based on the entire transaction.
For example, four taxpayers own an equal share of a building that is sold. The gross sales price of the building is $1,600,000, with a cost basis of $800,000. No other expenses or exemptions apply to the sale. Each of the sellers will receive less than $1,000,000, but the gross sales price exceeds the threshold. The withholding agent will have to withhold the tax that would be due from each taxpayer on their portion of the net gain.
When filing Form NRW, the withholding agent will submit separate Transferor’s Certifications for each seller.
Who is exempt from withholding?
The following types of sellers will be exempt from the withholding requirements:
- Full-year Massachusetts residents
- Pass-through entities
- Publicly traded partnerships
- Estates of resident decedents
- Resident trusts
- Corporations with a continuing Massachusetts business presence
- Organizations qualified under Internal Revenue Code (Code) § 501(c)(3), unless the sale/transfer results in unrelated business taxable income
- Insurance companies
- The U.S. government, Massachusetts, or any political subdivision, or their respective agencies
- The Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, or a private mortgage insurance company
- Financial institutions
- Certain real estate investment trusts
What is required if the seller is exempt from withholding?
A withholding agent will be required to file a Form NRW and include the Transferor’s Certification where the gross sales price from the transaction equals or exceeds the threshold, even if there is no tax due. A seller must indicate that it is exempt on the Transferor’s Certification.
Where a seller is not exempt, are there nevertheless circumstances where withholding is reduced or eliminated?
There are several circumstances where the amount required to be withheld may be reduced or eliminated. These exceptions can be found in 830 CMR 62B.2.4(5) and include the following:
- Sales where the required withholding amount is greater than the amount by which the sales price exceeds amounts used for the payment of the seller’s debts secured by a mortgage or other lien on the property that are paid at the closing.
- Foreclosure sales where the sales price does not exceed the debt secured by the property held by a mortgagee or lienholder.
- Certain involuntary or compulsory conversions of property under Code § 1033.
- Sales where the property is only partly located in Massachusetts; and
- Sales where a portion of the gain is not recognized under M.G.L. c. 62 or M.G.L. c. 63.
A seller must indicate on the Transferor's Certification that it is eligible for a reduction from the full amount of withholding due.
Are there any forms required to claim an exemption from or reduction of the full withholding amount?
Yes. The seller is required to provide the withholding agent with a Transferor’s Certification. If the seller is exempt from the withholding requirement or a lesser amount of tax is due as described in the draft regulation, the seller will certify as such on the Transferor’s Certification. The withholding agent must submit the Transferor’s Certification with Form NRW.
Who is responsible for remitting the amount withheld?
The withholding agent is required to remit the amounts withheld and may be subject to penalties for failure to withhold.
How does a seller claim a credit for the amount withheld at the time of sale?
The seller will claim the withholding amount as a credit when they file their individual or corporate tax return for the tax year in which the sale takes place. The seller is responsible for paying any income tax or excise due on the net gain from the sale of Massachusetts real estate.
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