New Withholding Requirements for Non-Resident Sellers of Massachusetts Real Estate
The withholding regime, pursuant to recently passed regulation 830 CMR 62B.2.4 , creates new considerations for the parties to any Massachusetts real estate sales transaction, including compliance requirements regardless of whether the seller is exempt from withholding, and corresponding deadlines (as discussed below). In addition, if withholding applies, it may significantly reduce the seller’s take-home proceeds. Tax refunds are available, but only upon filing of the seller’s tax return for the year in which the transaction occurred, which could cause a delay in the receipt of the seller’s consideration.
Key Highlights
Who is subject to withholding?
Non-resident sellers of Massachusetts real estate are generally subject to this withholding tax unless they fall into one of the following exemptions: (1) full-year Massachusetts residents; (2) certain pass-through entities, such as partnerships and S corporations (such entities have their own withholding obligations for Massachusetts source gains allocable to nonresident partners or shareholders); (3) resident trusts or estates with a resident decedent; (4) corporations with a continuing Massachusetts business presence; (5) tax-exempt organizations unless the sale generates unrelated business taxable income (UBTI); and (6) real estate investment trusts distributing gains as dividends, among other types of entities (such as certain financial institutions and government bodies).
What transactions are exempt or have reduced withholding?
Sellers may be able to reduce some or all of the otherwise applicable withholding if the sales transaction falls into one of the categories described below:
A sale where the withholding amount is greater than the amount by which the sales price exceeds the amount used for the payment of the seller’s debt;
A foreclosure transaction when the gross sales price does not exceed the amount of the debt secured by the property;
Certain involuntary transfers under IRC section 1033;
Property only partly located in Massachusetts;
A sale where a portion of the gain is not recognized under certain General Laws of Massachusetts; or
A like-kind exchange under IRC section 1031, to the extent the gain has been deferred.
For installment sales, the seller may elect on the Transferor’s Certification to have withholding apply based on a proportionality rule set forth in regulation 830 CMR 62B.2.4(7)(b) to only the initial payment made by the transferee (rather than the entire amount). If the seller makes such an election, then they must consent to withholding on future payments.
How much is withheld?
Generally, default withholding on the transfer of Massachusetts real estate under the new regime is 4% of the gross sales price. For amounts in excess of the “surtax threshold” ($1,083,150 for taxable year 2025), the rate increases to 8% of the gross sales price for sellers that are individuals. The term “gross sales price” includes cash, fair market value of other property, and liabilities assumed by the buyer. Sellers may elect (on the required Transferor's Certification, described below) to having withholding apply on the estimated net gain. Under this election the applicable rates of withholding are up to 9% of estimated net gain for individuals and 8% of estimated net gain for corporations. Estimated net gain is the gross sales price minus estimated adjusted basis and settlement-related expenses.
What is the process for withholding?
The withholding agent is responsible for withholding at the time of the sale. A withholding agent may be the closing attorney, escrow company, title company, or the buyer, if no other parties are involved. The seller must provide the withholding agent with a Transferor's Certification on the form provided by the Massachusetts Department of Revenue prior to closing. If no Transferor's Certification is provided then the withholding agent must withhold at the 4% default rate on the gross sales price. The withholding agent must file the Nonresident Real Estate Withholding return on Form NRW (yet to be published), a closing disclosure statement (also known as a HUD statement), and the Transferor's Certification and remit the applicable withholding tax payment (if any) within 10 days of closing. The withholding agent may be subject to penalties for failure to withhold.
In short, under the new regime, sellers must be aware of the economic impact if withholding tax applies to them and be prepared in advance to provide a Transferor's Certification, and the withholding agent/ buyer must be aware of their potential withholding and filing obligations.
