Who Has to Pay, Who Doesn’t? Common Exemptions Explained
- Kat Moore — The German Realtor®
- Aug 20
- 2 min read
On Monday, I broke down what Maryland’s “Exit Tax” (also known as withholding tax) is. Today, let’s talk about the part everyone really wants to know: Do I actually have to pay it?
The answer: it depends. Here are the most common situations:
✅ When It Does Not Apply
You’re a Maryland resident at closing. If Maryland is your legal residence when you sell (driver’s license, voting, taxes, etc.), you’re in the clear.
You’re selling your primary residence in Maryland. If it qualifies as your main home under IRS rules (think “lived in it 2 of the last 5 years”), you may be exempt.
The sale qualifies for an exemption form. Maryland allows sellers to complete Form MW506AE (Application for Certificate of Full/Partial Exemption). This form tells the title company, “Hey, this transaction shouldn’t be subject to withholding.”
⚖️ Primary Residence vs. Investment Property
Primary Residence: If it’s your main home, you may be exempt.
Investment / Rental Property: These usually don’t qualify for exemption. Expect the withholding if you’re a non-resident.
📝 How the Exemption Form Works
You (or your agent/title company) complete Form MW506AE before closing.
Provide documentation (proof of residency, military orders, etc.).
If approved, the title company does not withhold taxes at closing.
🚦 Bottom Line
Not everyone has to pay the Exit Tax. However, if you’re a non-resident selling a Maryland property, you should inquire about exemptions early in the process. Completing the correct form can save you thousands.
👉 And if you’re military, there are even more specific rules that may work in your favor. I’ll cover those in my next post on Friday: ‘Special Rules for Military Families Selling in Maryland.’ Stay tuned!
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.
Reference used:
For more information on Maryland’s non-resident withholding tax, visit the Maryland Comptroller’s official page:https://www.marylandtaxes.gov/business/sales-use/withholding-nonresidents.php