When you are buying a home from a seller who is considered a non-resident (someone that lives in another state but is selling a property where you are buying), you may need to withhold part of the proceeds. And the requirements change state by state, so it is important to check with your state’s Department of Revenue or Taxation when you’re buying a property. It is also a good idea to talk to a licensed accountant or Tax Attorney to double check if you are required to withhold money when buying a home for an extra peace-of-mind.
Some states require withholding because it allows the state government to collect taxes on the home sale gains as it occurs. And they use that money to make the community better by providing public services and doing development.
The amount of withholding when buying a home depends on the selling price, location of the property, exemptions, and other factors. The one thing that is consistent is that you, the buyer, are responsible for holding the amount and paying it. The seller does not have to worry about this one as they live in another state. While not all states require you to withhold part of the sales price like Florida*, many do.
In Maryland*, 8% of the sales price needs to be withheld for nonresident individuals (8.25% for nonresident businesses or trusts.) The exception is when the property is the seller’s principal residence, it is in foreclosure, or the Comptroller of Maryland has issued a certificate stating that no tax is due. California* requires a withholding of 3 1/3% (.0333) of the total sale price. And just like Maryland, California has exemptions like if the sale will result in a loss or zero gain, or the property was used as the seller’s principal residence.
If you’re buying or selling a home in a different state, make sure you know about that state’s withholding rules. Being caught off guard could wind you up with unexpected fees, and it can make a potential deal fall through if the buyer was unprepared. We help people across the country everyday with this situation. If you have questions, contact us through the number at the top of the page and we’ll be ready to help with everything from withholding to title insurance and more!
*Accurate as of February 2023