| Date: | 03/28/2025 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Regulatory Authority: | Massachusetts General Laws |
| Official Version: | Published by the Massachusetts Register |
PROPOSED REGULATION
830 CMR: DEPARTMENT OF REVENUE
830 CMR 62B.00: WITHHOLDING AND ESTIMATED TAXES
830 CMR 62B.2.4: Withholding on Sales of Massachusetts Real Estate
(a) Statement of Purpose. The purpose of 830 CMR 62B.2.4 is to establish and explain the withholding requirements that apply to the proceeds of sales or transfers of Massachusetts real estate. These requirements are intended to facilitate the collection of personal income tax under M.G.L. c. 62 or the corporate excise under M.G.L. c. 63, on behalf of transferors of Massachusetts real estate, as authorized under M.G.L. c. 62B, § 2.
(b) Background. M.G.L. c. 62B, § 2 authorizes the Commissioner to require persons other than employers to withhold taxes from payments made by such persons to residents, nonresidents and part-year residents of the commonwealth, file withholding returns, and remit withheld amounts to the Commissioner. Pursuant to this authority, 830 CMR 62B.2.4 requires withholding on behalf of certain transferors of Massachusetts real estate.
830 CMR 62B.2.4 is effective for real estate closings that occur on or after June 1, 2025.
(c) Outline of Topics.
The following sections are contained in 830 CMR 62B.2.4.
(1) Statement of Purpose, Background, Outline of Topics
(2) Definitions
(3) General Rule
(4) Exemption for Certain Types of Transferors
(5) Other Exceptions to Withholding Requirements
(6) Reporting for Like-Kind Exchanges
(7) Installment Sales
(8) Transferor’s Certification
(9) Responsibilities and Requirements of Withholding Agent
(10) Responsibilities and Requirements of Transferor
(11) Penalties and Interest
For the purpose of 830 CMR 62B.2.4, the following terms shall have the following meanings unless the context requires otherwise:
Adjusted Basis. A reasonable estimate of the amount treated as basis for Massachusetts tax purposes under M.G.L. c. 62 for purposes of the personal income tax or M.G.L. c. 63 for purposes of the corporate excise. The adjusted basis for the purposes of 830 CMR 62B.2.4 may not be equal to the adjusted basis the Transferor uses to file the Transferor’s Massachusetts income tax return. The sum of the acquisition cost of the property to the Transferor, or the Transferor’s share of the fair market value of the property at the date of death for inherited property, and the Transferor’s costs for any major improvements to the property shall be considered a reasonable estimate of the amount treated as basis for Massachusetts tax purposes.
Closing. The date of Settlement.
Code. The Internal Revenue Code, as defined under M.G.L. c. 62 for purposes of the personal income tax or as defined under M.G.L. c. 63 for purposes of the corporate excise.
Commissioner. The Commissioner of the Department of Revenue, or the Commissioner’s duly authorized representative.
Gross Sales Price. The sum of: (i) cash paid or to be paid, excluding interest or original issue discount as defined in Code § 1273, (ii) the fair market value of other property transferred or to be transferred, and (iii) the outstanding amount of any liability assumed by the transferee or to which the real estate is subject immediately before and after the transfer. “Gross sales price” encompasses the entire transaction, including all payments made or to be made pursuant to an installment transaction.
Installment Transaction. A transaction that is subject to installment sale treatment under M.G.L. c. 62, § 63.
Maintains a Place of Business in Massachusetts. In the context of a business entity, is organized under Massachusetts law; is registered with the Secretary of State to do business in Massachusetts; or maintains a place of business in Massachusetts at which the entity carries on its business in a regular and systemic matter and which is consistently maintained, occupied and used by employees of the entity.
Net Gain. The gross sales price from the Transfer, reduced by the sum of the adjusted basis of the property sold and the expenses that directly relate to the Settlement.
Pass-Through Entity. An entity whose income, gains, losses, deductions, and credits flow through to members for Massachusetts tax purposes, including a partnership, an S corporation, an estate, and a trust not taxed at the entity level. An entity that is disregarded for tax purposes, such as a grantor-type trust or single-member limited liability company, or a trust that does not pass through to its beneficiaries all of the gain from the sale of Real Estate is not considered a pass-through entity for purposes of 830 CMR 62B.2.4.
Publicly Traded Partnership. An entity treated as a publicly traded partnership under Code § 7704(b).
Real Estate. Any interest in real property located in Massachusetts and treated as an interest in real property under Code §§ 897(c)(1)(A) and 897(c)(6).
Secretary of State. Secretary of the Commonwealth of Massachusetts.
Settlement. The passage of the deed and title to real estate from the Transferor to the Transferee.
Transfer. The sale or conveyance of real estate for consideration.
Transferee. The buyer or person who takes ownership of real estate by sale, exchange, or any other Transfer.
Transferor. The seller or person who transfers ownership of real estate by sale, exchange, or any other Transfer. In the case of a Transfer by an entity that is disregarded for tax purposes, such as a trust not taxed at the entity level, including a grantor-type trust entity, the Transferor is the beneficial owner of such entity.
Transferor’s Certification. A certification that a Transferor must complete and provide to the Withholding Agent for any Transfer in which the gross sales price equals or exceeds the Withholding Threshold. The certification shall be provided using a form promulgated by the Commissioner.
Withholding Agent. The person responsible for closing a real estate transaction, including an attorney, escrow company, or title company, or any other person who receives and disburses the consideration or value for a Transfer of Real Estate.
Withholding Threshold. The gross sales price at or above which a Transfer is subject to the withholding requirements under 830 CMR 62B.2.4. For purposes of 830 CMR 62B.2.4, the Withholding Threshold is $1,000,000.
(a) Transfers Subject to Withholding. Except as otherwise provided in 830 CMR 62B.2.4, a Transfer is subject to withholding if the real estate is located in whole or part in Massachusetts and the gross sales price equals or exceeds the Withholding Threshold, unless the Transferor is exempt under 830 CMR 62B.2.4(4). The Withholding Agent is required to collect and remit withholding amounts due and submit a return to the Commissioner in accordance with the provisions in 830 CMR 62B.2.4(9). If the Transfer is otherwise subject to withholding, but all Transferors are exempt under 830 CMR 62B.2.4(4), the Withholding Agent must submit a return and, for each Transferor, a Transferor’s Certification. Withholding, returns, and all Transferor’s Certifications are due to the Commissioner within 10 days of the Closing, except as otherwise provided in 830 CMR 62B.2.4(6). For Transfers where there is no Withholding Agent, the Transferee is required to act as the Withholding Agent.
(b) Multiple Transferors; Multiple Transferees. If a Transferor owns the real estate with one or more other Transferors, the withholding treatment of each Transferor is determined separately; determination of whether the Withholding Threshold has been reached shall, however, be determined based on the entire transaction. If the real estate is transferred to two or more joint Transferees and there is no Withholding Agent, each Transferee must act as a Withholding Agent as set forth in 830 CMR 62B.2.4(3)(a) and is subject to the obligation to withhold on that Transferee’s proportionate share of the Net Gain.
(c) Withholding Amount. The amount required to be withheld shall equal the Massachusetts income tax rate applicable to each Transferor, as set forth in 830 CMR 62B.2.4(3)(d), multiplied by the Transferor’s share of the Net Gain derived from the Transfer. The Transferor’s share of the Net Gain is determined by multiplying the total gain derived from the Transfer by a percentage representing the Transferor’s share of the gross sales price and subtracting any expenses directly related to the Settlement that are attributed to the Transferor. The Transferor must provide the information necessary for the Withholding Agent to calculate the withholding amount on a Transferor’s Certification as set forth in 830 CMR 62B.2.4(8). If the Transferor fails to provide such information, the Withholding Agent shall instead withhold an amount equal to the Transferor’s share of the gross sales price multiplied by the applicable rate of tax that would apply under 830 CMR 62B.2.4(3)(d) if the Transferor’s share of the net gain were equal to the Transferor’s share of the gross sales price
(d) Applicable Rate of Tax. The tax rate applicable to a Transferor subject to tax under M.G.L. c. 62 shall be the personal income tax rate under M.G.L. c. 62, § 4 (b), regardless of the character of the net gain. If the Transferor’s share of the net gain exceeds the taxable income threshold referenced in M.G.L. c. 62, § 4(d), then the tax rate applicable to the portion of such net gain exceeding the taxable income threshold shall be the applicable rate under M.G.L. c. 62, § 4 (b), regardless of the character of the net gain, plus an additional 4%. The tax rate applicable to a Transferor subject to tax under M.G.L. c. 63 shall be the tax rate set forth in M.G.L. c. 63, § 39(a)(2).
Example. Taxpayer A and Taxpayer B are individuals who own Real Estate. Taxpayer A owns a 20% share and Taxpayer B owns an 80% share of the Real Estate. The Adjusted Basis of the Real Estate is $800,000. Taxpayer A and Taxpayer B sell the real estate for a gross sales price of $1,500,000. Taxpayer A had $50,000 worth of expenses directly related to the Settlement and Taxpayer B had no such expenses.
Taxpayer A’s share of the gross sales price is $300,000 and Taxpayer B’s share of the gross sales price is $1,200,000. Since the total gross sales price exceeds the Withholding Threshold, the entire sale is subject to withholding even though Taxpayer A’s share of the gross sales price is less than the Withholding Threshold. Therefore, withholding is required on each Transferor’s share of the Net Gain.
The Net Gain is $650,000 ($1,500,000 - $800,000 - $50,000). Taxpayer A’s share of the Net Gain is $90,000 ($700,000 x 0.2 - $50,000). Taxpayer B’s share of the Net Gain is $560,000 ($700,000 x 0.8). Because Taxpayer A and Taxpayer B are individuals, the applicable tax rate is the personal income tax rate under M.G.L. c. 62, § 4(b). Because these individuals’ respective share of the Net Gain is each less than the taxable income threshold referenced in M.G.L. c. 62, § 4(d), the applicable tax rate is 5% and the additional 4% does not apply. The withholding amount required for Taxpayer A is $4,500 ($90,000 x 0.05) and the withholding amount required for Taxpayer B is $28,000 ($560,000 x 0.05).
(a) General. Withholding on a Transfer is not required for certain types of Transferors as described below. In the case of a Transfer that includes more than one Transferor, this exemption only applies to those Transferors so described. All other Transferors are subject to withholding on the Transfer as otherwise determined in 830 CMR 62B.2.4. A Transferor claiming exemption from withholding must certify that they are exempt on the Transferor’s Certification provided to the Withholding Agent at or before Closing as required under 830 CMR 62B.2.4(8). The following types of Transferors qualify for exemption:
(b) Full-year Massachusetts Resident. For the purpose of 830 CMR 62B.2.4, a person is a full-year Massachusetts resident if they:
(c) Corporation or Member of Combined Group with Continuing Massachusetts Business Presence
i. filed a Massachusetts income tax return for the tax year prior to the tax year in which the Transfer occurs; and
ii. maintains a place of business in Massachusetts at the time of the Transfer;
i. represents that it or a member of its combined group is subject to a requirement to report the Transfer on a Massachusetts tax return for the current year, and that it or that member will so report the Transfer; and
ii. represents that it is not selling or transferring all or substantially all of the corporation’s assets situated in Massachusetts such that, under M.G.L. c. 62C, § 51, it would be required to seek a waiver or notify the Commissioner and pay the taxes due on the Transfer on or before the date of sale or transfer.
(a) General. Withholding may be reduced below the amount required by 830 CMR 62B.2.4(3) or not required at all if the Transferor certifies, at or before Closing, on a Transferor’s Certification that withholding is reduced or not required under 830 CMR 62B.2.4(5). The Transferor’s Certification must include a statement of the reason or reasons why withholding is reduced or not required.
i. a Transfer of a principal residence as defined under Code § 121;
ii. a Transfer between spouses or incident to a divorce, as defined under Code § 1041;
iii. a Transfer that qualifies for nonrecognition under Code § 351; or
iv. a Transfer that qualifies as a tax-free reorganization as defined under Code § 368.
(a) Notification to Commissioner of Amount of Deferral. Withholding is not generally required for Transfers that qualify under the provisions of Code § 1031 on the amount of any gain that is deferred for Massachusetts tax purposes. To avoid withholding on any gain that is deferred, the Transferor must provide the Withholding Agent with a statement on the Transferor’s Certification acknowledging the amount of gain that has been deferred and consenting to personal jurisdiction in Massachusetts for the determination and collection of taxes and related interest, penalties, and fees that will be due when the gain is realized.
(b) Withholding Required on Gain Recognized under Code § 1031(b) Property. Withholding is required on any gain that is recognized under Code § 1031(b), as adjusted for Massachusetts tax purposes, even if the Transfer qualifies as a like-kind exchange.
(c) Transferor Must Qualify for the Deferral. If at the time of Closing an exchange appears to qualify as a like-kind exchange, but subsequently fails to meet the requirements of Code § 1031, the Transferor must notify the Commissioner in writing within 10 days of the expiration of the statutory periods specified in Code § 1031(a)(3) and remit the applicable payment equal to the withholding amount that would have been required under 830 CMR 62B.2.4 in an estimated payment next due in accordance with the payment due dates under M.G.L. c. 62B, § 14 and M.G.L. c. 63B, § 4A or 4B, as applicable.
(a) General Rule. If the Transfer is subject to installment sale treatment under M.G.L. c. 62, § 63, the Transferor may elect to have withholding apply only to the initial payment made by the Transferee at the time of the Transfer rather than to the entire amount. This withholding election shall be made at Closing on the Transferor’s Certification and shall include a statement by the Transferor consenting to personal jurisdiction in Massachusetts for the determination and collection of taxes and related interest, penalties, and fees that will be due on subsequent installment payments.
(b) Withholding Amount. If the Transferor elects to have withholding only apply to the initial payment, the withholding amount for such payment shall be the amount calculated pursuant to 830 CMR 62B.2.4(3) using the portion of the Transferor’s share of the Net Gain that is allocated to that payment based on the proportion the payment bears to the Transferor’s share of the total sales price.
(c) Timing of Payment. The initial withholding return and payment are due within 10 days of Closing.
(d) Transition Rule. If real estate has been sold under the installment method prior to the date provided in 830 CMR 62B.2.4(1), withholding is not required on payments that are received after that date.
A Transferor shall execute a Transferor’s Certification and provide the certification to the Withholding Agent in any case where the gross sales price for a Transfer equals or exceeds the Withholding Threshold. The Transferor shall use the Transferor’s Certification to provide information, as required by the Commissioner, necessary for the Withholding Agent to calculate the withholding amount required under 830 CMR 62B.2.4(3)(c).The Transferor shall also use the Transferor’s Certification to make representations, if any, that the Transferor is exempt from withholding or that withholding is reduced or is not required. The Withholding Agent may rely upon the information provided in the Transferor’s Certification if it takes the Transferor’s Certification in good faith.
(a) Filing Withholding Return and Making Withholding Payment. For each Transfer subject to withholding as set forth in 830 CMR 62B.2.4(3), the Withholding Agent must file the withholding return and any Transferor’s Certifications and remit the withholding tax payment to the Commissioner within 10 days of Closing. Until it is remitted, tax withheld is deemed to be held in trust for the commonwealth. Filing and payment must be done electronically. The withholding return must provide the date of the Transfer, names, addresses and identification numbers of the Transferee and Transferor, total sales price, transferor’s cost basis, total gain recognized and the amount of withholding to be remitted.
(b) File Transferor’s Certification. The Withholding Agent must file all Transferor’s Certifications with the withholding return and any withholding payment. The Withholding Agent must also file any supporting documentation as the Commissioner may require. A Transferor’s Certification may not be submitted after the due date of the withholding return.
(c) Provide Documentation to Transferor. If the Withholding Agent files a withholding return, the Withholding Agent must, no later than the due date for filing with the Commissioner, provide a copy of the return and the applicable Transferor’s Certification to the Transferor. If the Withholding Agent remits tax on behalf of the Transferor, a receipt for such payment must also be provided to the Transferor.
(d) Amending Returns. A Withholding Agent may submit an amended return to increase or decrease previously reported withholding, or report any other change that has no net effect on the tax shown on a return previously filed by the Withholding Agent within the time limits and other requirements provided in 830 CMR 62C.26.2, Amended Returns. An amended return cannot be filed to claim an exemption from the withholding requirements under 830 CMR 62B.2.4 if a Transferor’s Certification was not filed with the Commissioner on or before the due date of the withholding return as provided under 830 CMR 62B.2.4(9)(a).
(a) Provide Withholding Agent with Transferor’s Certification. For all Transfers subject to withholding, the Transferor must provide the Withholding Agent with a Transferor’s Certification signed under penalties of perjury as set forth in 830 CMR 62B.2.4(8). If the Transferor does not provide a Transferor’s Certification before the return is filed, then a withholding exemption cannot be claimed. The Withholding Agent shall withhold the Transferor’s share of the gross sales price multiplied by the applicable rate of tax that would apply under 830 CMR 62B.2.4(3)(d) if the Transferor’s share of the net gain were equal to the Transferor’s share of the gross sales price, instead of the amount determined under 830 CMR 62B.2.4(3)(c).
(b) Retain Transferor’s Certification. The Transferor shall retain a copy of the Transferor’s Certification and shall provide this information to the Commissioner upon request.
(c) Liability. The Transferor is responsible for paying any tax due on the net gain from the Transfer of Massachusetts real estate. Tax due includes any applicable interest, as set forth in 830 CMR 62B.2.4(11)(b).
(d) Transferor that is an Exempt Government Entity or Agency. A Transferor that is exempt under 830 CMR 62B.2.4(4)(a)8. is not required to provide a Transferor’s Certification to the Withholding Agent. Unlike with respect to other Transferors referenced in 830 CMR 62B.2.4(4)(a), if such Transferor does not provide a Transferor’s Certification, the Transferor remains exempt from the withholding requirement. Also, in these cases the Withholding Agent is not required to withhold, provided that the Withholding Agent shall maintain adequate documentation verifying that the Transferor is an exempt government entity.
(a) Penalties. A Withholding Agent that fails to meet its withholding obligation shall be subject to the penalties for failure to withhold that apply under M.G.L. c. 62B and penalties imposed under M.G.L. c 62C. The Withholding Agent is not liable for penalties if the tax due as a result of the Transfer is paid by the original or extended due date of the Transferor’s return for the taxable year in which the Transfer occurred or if the Withholding Agent fails to meet its withholding obligation because it reasonably and in good faith relied on the Transferor’s Certification.
(b) Interest. If any amount of withholding is not paid to the Commissioner on or before the due date of the Transferor’s tax return on which the gain is reported pursuant to M.G.L. c. 62C, interest shall be assessed on the amount that should have been withheld at the rate established under M.G.L. c. 62C, § 32 computed from the due date of the withholding return to the date the tax is paid.
Proposed Regulation – Public Hearing 4/29/25
Written comments may be emailed to RulesandRegs@dor.state.ma.us.
