Maryland Form MW506AE: Exchange Exemption From Nonresident Withholding

Maryland collects at the recorder's window, on net proceeds rather than price

Under Tax-General section 10-912, a deed from a nonresident or nonresident entity may not be recorded unless the withholding payment is made to the clerk. The rate for individuals is the lowest county rate plus the top state rate, and the Comptroller's April 2026 tax alert confirms that since July 1, 2025 that sum is 8.75%, with entities at the 8.25% corporate rate.

The base is the total payment. The MW506NRS instructions compute it as the sales price, including the value of any property paid to the seller, less mortgages and liens, the commission and other expenses due from the seller. Hypothetically, a $1,500,000 sale with a $500,000 payoff and $100,000 of costs leaves a $900,000 total payment and $78,750 of withholding for an individual. Run your own numbers with your CPA.

A nonresident entity is one not formed under Maryland law, and not qualified or registered with the Department of Assessments and Taxation, more than 90 days before the sale. The person responsible for closing files Copies A and B of MW506NRS with the deed and pays the clerk by check or money order.

Form MW506AE is a pre-closing application, and 21 days means received

Form MW506AE is printed with the warning that the form and required documents must be received no later than 21 days before the closing date. An application without a closing date will not be processed. File one per seller unless spouses file a joint Maryland return. You can mail it to the Revenue Administration Division in Annapolis or email it to nrshelp@marylandtaxes.gov, by one method only; email does not speed processing.

Page 1 builds the tentative exemption. Line 1 is the original purchase price with the settlement statement attached, line 2 documented improvements, line 3 settlement costs on purchase and sale, line 5 depreciation with a schedule, line 7 the contract price with contract pages, and lines 8 through 10 the gain, ownership share and rate.

The form asks whether the property was ever a rental or commercial property. Maryland requires nonresident owners to file returns reporting rental income or loss, and the instructions warn that the application will be denied if you checked the box and did not file. Bring returns current before applying.

The exchange box needs a letter from the intermediary that names any boot

On page 2, check Tax-Free Exchange for purposes of section 1031. The instructions require a letter signed by the qualified intermediary, or a person authorized to sign for it, stating the sellers' names, the property, that it will act as qualified intermediary in a section 1031 exchange, whether there will be any boot and the amount. Boot must be entered on the application as the taxable amount.

If the Comptroller agrees, it issues a certificate stating the amount, if any, still to be withheld and mails it to the title company or settlement agent named on the form. With a partial exemption, the closer skips the computation on MW506NRS and enters the amount from the certificate on line 8i.

The Comptroller recalculates from the documents it receives, and its decision on whether to issue a certificate and for how much is final. Missing documents can mean full withholding at the clerk's window. What counts as boot is explained in what boot means in a 1031 exchange.

When withholding happens anyway, the refund route depends on the price

Withholding paid with MW506NRS is credited on the Maryland nonresident return for the year of sale. A faster route is the tentative refund on Form MW506R, but since the 2025 budget act a seller whose sales price was $1,500,000 or more cannot use it and must wait for the annual return, with Form 502CG if required.

The same 2025 act added a 2% tax on net capital gain for individuals and fiduciaries with federal adjusted gross income over $350,000. A deferred exchange keeps that gain off the return; boot or a failed exchange does not. For other states with a pre-closing deadline, see exemption filing deadlines by state and West Virginia's Form NRAE.