Understanding Maryland's Nonresident Withholding Tax: What Military Families Need to Know
- Kat Moore — The German Realtor®
- Aug 22
- 3 min read
Updated: Sep 10
Maryland has a little “goodbye gift” for nonresidents who sell property here — the infamous nonresident withholding (a.k.a. the “exit tax”). But if you’re military, there’s good news: Uncle Sam outranks Maryland tax law in some cases.
The Military Exemption — Do You Qualify?
If you (or your spouse) are active-duty military and you’re stationed outside Maryland on official orders, you may be exempt from the withholding. That means at closing, the title company won’t automatically grab 8% of your sale proceeds and ship it off to Annapolis.
👉 Translation: You keep more of your money at closing instead of waiting months to get it back through a tax return.
How to Actually Claim It (a.k.a. The Paperwork Battle)
Maryland doesn’t just take your word for it — you’ll need to prove your status:
File Form MW506AE – This is Maryland’s “Application for Certificate of Full or Partial Exemption.”
Show Your Orders – A copy of your PCS or official stationing orders is required. This proves you’re out of Maryland because of Uncle Sam, not just because you fell in love with Florida sunshine.
Submit Early – Bring this up with your Realtor (hello 👋) and title company as soon as you know you’re selling. The Comptroller’s office needs time to process the exemption before closing day.
Common Mistakes Military Families Make
Waiting until closing: By then, it’s too late. The title company must withhold unless the exemption is already approved.
Not filing the right form: MW506AE is your friend. MW506 (without the AE) is something else entirely. Think of the “AE” as standing for “Active Exemption.”
Assuming all military are exempt: This only applies if you’re stationed outside Maryland.
Here’s where things get a little twisty. Even if you’ve officially changed your residency (say, to Texas or Florida 🌴), you might still dodge the withholding tax if the house you’re selling meets the primary residence test:
If the property is registered with SDAT in Maryland, and
You can prove that you lived there as your principal residence for at least 2 out of the last 5 years before the sale,
👉 Then you can qualify for the primary residence exemption — even as a nonresident.
That means: no withholding at closing, even if Maryland isn’t your legal home anymore.
Examples of Exemption Scenarios
Soldier stationed at Fort Meade, legal residency Texas, selling a Maryland house where they lived for 3 years → Exempt (because of the 2-out-of-5-year rule).
Soldier stationed at Fort Meade, legal residency Texas, selling a Maryland rental they’ve never lived in → Not exempt, withholding applies.
Why This Matters
The withholding is not chump change — for many families, it’s tens of thousands of dollars. That’s money you could be using for your next down payment, moving expenses, or… let’s be honest, a well-deserved vacation after surviving another PCS. 🧳✈️
Additional Tips for a Smooth Sale
Communicate with Your Realtor
Your Realtor is your best ally in this process. They can help you navigate the paperwork and ensure you meet all deadlines. Don’t hesitate to ask questions.
Keep Records Organized
Having all your documents in one place can save you time and stress. Keep copies of your orders, tax forms, and any correspondence related to your sale.
Plan for Closing Day
The closing process can be hectic. Make sure you understand what to expect. Ask your Realtor to explain the closing statement and any fees involved.
Conclusion
Selling a home while navigating military life can be challenging, but understanding Maryland's nonresident withholding tax can make a significant difference. By knowing your rights and the exemptions available, you can save yourself a lot of money and stress.
Kat Moore | Realtor | Advisor
Samson Properties
📞 410-414-5967 (cell), 443-975-7555 (office)
⚠️ Disclaimer: This blog post is provided for general informational purposes only and reflects my perspective as a licensed real estate agent. It does not constitute legal, tax, or financial advice. Laws and regulations can change, and individual circumstances vary. Please consult a licensed tax professional, attorney, or other qualified advisor for advice specific to your situation.
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