Overview
The withholding rules on sales or exchanges of real estate generally require a withholding agent to withhold an amount reasonably equivalent to the personal income tax or corporate excise, as applicable, that will be due on the capital gain from a non-resident’s sale or exchange of Massachusetts real property. The withholding requirement only applies when the gross sales price is $1,000,000 or more. Non-resident sellers (or other transferors of property) include individuals and business corporations with no continuing Massachusetts business presence. DOR has issued a 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 regulation provisions are effective for real estate closings that occur on or after November 1, 2025.
What are the new withholding requirements?
Generally, a withholding agent (usually the closing attorney or title company) is required to withhold a certain amount of tax on behalf of the seller at the time of the sale of real estate when the gross sales price is $1,000,000 or more.
The withholding agent must also file a return (see also, “What is a Form NRW?”) and remit the amount withheld to the Department of Revenue within 10 days of closing.
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 is the withholding amount calculated?
The amount withheld is calculated based on the gross sales price, unless the seller elects to use the alternative withholding calculation (see also, “What is the alternative withholding calculation?”).
The amount withheld may also be reduced or eliminated, where the seller certifies to the withholding agent that they are exempt from withholding or that a lesser amount of tax is due (see also, “What is a Transferor’s Certification?”).
Finally, the tax rate will change depending on who the seller is and whether they elect the alternative withholding calculation (see also, “What tax rate should be used for purposes of calculating the withholding amount on taxpayers subject to the personal income tax?” and “What tax rate should be used for purposes of calculating the withholding amount on taxpayers subject to the corporate excise?”)
What is the gross sales price?
The gross sales price is the total amount that the seller receives, or will receive, from the sale or exchange of real estate. This includes cash, the fair market value of other property, and the outstanding balance of liabilities assumed by the buyer.
What is the alternative withholding calculation?
The alternative withholding calculation is the seller’s estimated net gain from the sale or exchange of real estate, multiplied by the tax rate applicable to the seller. The seller must elect to calculate the withholding amount using the alternative withholding calculation. Without an affirmative election, the withholding agent must withhold on the gross sales price.
What tax rate should be used for purposes of calculating the withholding amount on taxpayers subject to the personal income tax?
The tax rate for purposes of calculating the withholding amount on taxpayers subject to the personal income tax is 4% of the gross sales price. If the seller elects to use the alternative withholding calculation, the tax rate is 5% of the estimated net gain.
Where either the gross sales price or the estimated net gain, as applicable, exceeds the surtax threshold for personal income taxpayers, the withholding agent must withhold an additional 4% on the amount over the surtax threshold.
What tax rate should be used for purposes of calculating the withholding amount on taxpayers subject to the corporate excise?
The tax rate for purposes of calculating the withholding amount on taxpayers subject to the corporate excise is 4% of the gross sales price. If the seller elects to use the alternative withholding calculation, the tax rate will be 8% of the estimated net gain.
What is a Transferor’s Certification?
A Transferor’s Certification is a form created by DOR to be used by sellers and withholding agents for purposes of certifying the amount of withholding on sales or exchanges of real estate. For every sale or exchange of Massachusetts real property when the gross sales price is $1,000,000 or more, each seller must complete a Transferor’s Certification and give it to the withholding agent on or before closing. The withholding agent will use the information provided on the Transferor’s Certification to complete and file Form NRW: Nonresident Real Estate Withholding. On the Transferor’s Certification, the seller must attest to any applicable exemptions from, or reductions to, the withholding requirement. If the seller makes an election to withhold based on the alternative withholding calculation and certifies the estimated net gain amount on the Transferor’s Certification, then the withholding agent withholds on the estimated net gain amount.
Note, a Transferor’s Certification is not required where the seller is a government entity.
What happens if the seller does not provide a Transferor’s Certification?
Where the seller does not provide a signed Transferor’s Certification by or before the time of the sale of real estate, the withholding agent must withhold on the gross sales price at the applicable rate.
What is Form NRW?
The Form NRW: Nonresident Real Estate Withholding, is the return a withholding agent is required to file for every sale or exchange of Massachusetts real property when the gross sales price is $1,000,000 or more. This form must be filed even if no amount of withholding was collected.
When does a withholding agent have to file Form NRW and remit the withholding?
The withholding agent is required to file Form NRW and remit the amount of withholding collected electronically through MassTaxConnect within 10 days of the closing. If no withholding is required, the withholding agent will file Form NRW reporting zero tax due and must attach a Transferor’s Certification indicating why withholding was not required.
In filing the form and remitting the withholding, the withholding agent may rely in good faith on the information provided in the Transferor’s Certification. Good faith is presumed in the absence of evidence of bad faith.
Are there other documents the withholding agent is required to submit with Form NRW?
Yes, there are two additional types of documents that must be submitted electronically with Form NRW. The withholding agent is required to submit a Transferor’s Certification for each seller, except where the seller is a government entity. The withholding agent is also required to attach the HUD statement when submitting the Form NRW.
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. 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. Each taxpayer must provide the withholding agent with a Transferor’s Certification, on which each taxpayer must make various certifications including whether they qualify for any withholding exemptions or reductions, and whether they elect for the withholding agent to withhold an amount based on the alternative withholding calculation.
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, but only if they provide a Transferor’s Certification:
- 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?
Even where a seller has provided a Transferor’s Certification attesting they are exempt from withholding, a withholding agent is required to file a Form NRW where the gross sales price from the transaction equals or exceeds the threshold. The Transferor’s Certification must be submitted with Form NRW.
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, but only if the seller provides a Transferor’s Certification. 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.
These exceptions may reduce or eliminate the amount of withholding due regardless of whether the withholding amount is calculated based on the gross sales price or using the alternative withholding method. A seller must indicate on the Transferor's Certification that it is eligible for a reduction from the full amount of withholding otherwise due. 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 must report the gain from the sale of Massachusetts real estate on their individual or corporate tax return for the tax year in which the sale takes place. The seller will claim the amount withheld as a credit when they file their individual or corporate tax return and it will reduce or eliminate any tax due with the return. Any amount withheld that exceeds the seller’s tax due on the return will result in an overpayment, subject to any allowable offset or intercept. The seller will then select whether to have the overpayment applied to their estimated tax or refunded.
Resources
Contact
Phone
9 a.m.–4 p.m., Monday through Friday