In short
Massachusetts now withholds 4% of the gross price on $1 million-plus sales by nonresidents. Who is exempt, how a 1031 exchange avoids it, what happens with boot, and the 10-day filing.
Since November 1, 2025, every Massachusetts real estate closing with a gross sales price of $1,000,000 or more requires a withholding return, Form NRW, with a Transferor’s Certification from each seller, filed within 10 days of closing. A nonresident seller has 4% of the gross price withheld unless an exemption or exception applies. The rule is 830 CMR 62B.2.4, a Department of Revenue regulation issued under G.L. c. 62B, section 2. A seller completing a section 1031 exchange avoids withholding on the deferred gain by certifying the amount at closing; any boot is still withheld on. The planned Massachusetts withholding closing page will hold the form-by-form detail; this post explains the rule.
Who files, and when
The withholding agent is “the person responsible for closing a real estate transaction, including an attorney, escrow company, or title company,” or the buyer if there is no one else. The $1,000,000 threshold is tested on the entire transaction even when several sellers each receive less. The return, every certification and any payment are due “within ten days of Closing,” electronically through MassTaxConnect, and the return is required even when the withholding is zero. Tax withheld is “deemed to be held in trust for the commonwealth” until remitted. The Department waived penalties on withholding agents for closings between November 1 and December 31, 2025 while the form was new; that grace period has ended, and a 2026 version of the certification is on the Department’s page (source).
The rate and the base
The default withholding equals the seller’s share of the gross sales price multiplied by 4%. For an individual whose share of the gross price exceeds the surtax threshold in G.L. c. 62, section 4(d), an additional 4% is withheld from the portion above that threshold. Gross sales price includes any liability the buyer assumes or takes subject to, and all payments under an installment sale (830 CMR 62B.2.4(2) and (3)(c)).
A seller may instead elect the alternative calculation: estimated net gain multiplied by the applicable tax rate. Estimated net gain is the gross price less an estimated adjusted basis (acquisition cost, or date-of-death value for inherited property, plus major improvements) and settlement expenses. The Department’s FAQ gives the rates as 5% of estimated net gain for personal income taxpayers and 8% for corporate excise taxpayers.
A hypothetical: a Florida resident sells a Massachusetts duplex for $2,000,000 with an estimated adjusted basis of $1,200,000 and $100,000 of settlement costs. Default withholding is $80,000 before any surtax layer; the alternative is $700,000 of estimated gain at 5%, or $35,000. The election is made on the certification at closing. Run your own numbers with your CPA.
Who is exempt
Section (4) lists sellers for whom no withholding is required, each of whom certifies the exemption at or before closing: a full-year Massachusetts resident, meaning a resident from January 1 of the year of sale through closing who represents that they will remain one; a pass-through entity; a publicly traded partnership; a resident estate or trust; a corporation with a continuing Massachusetts business presence; a section 501 organisation unless the sale produces unrelated business taxable income; insurance companies, governments, the federal mortgage agencies, Massachusetts financial institutions, and a REIT that distributes the proceeds as dividends.
Section (5) then reduces or removes withholding in specific situations: when a mortgage paid at closing leaves less cash than the withholding (debts placed within 90 days of the transfer do not count); foreclosure sales and deeds in lieu; involuntary conversions under section 1033; and property only partly in Massachusetts.
The 1031 exemption, exactly as written
Section (6) is the part an exchanger needs, and it has three moving parts.
- Deferred gain: “Withholding is not generally required for Transfers that qualify under the provisions of Code section 1031 on the amount of any gain that is deferred for Massachusetts tax purposes.” To get there, the seller must give the withholding agent “a statement on the Transferor’s Certification acknowledging the amount of gain that has been deferred and consenting to personal jurisdiction in Massachusetts” for the tax due when the gain is later recognised.
- Boot: “Withholding is required on any gain that is recognized under Code section 1031(b), as adjusted for Massachusetts tax purposes, even if the Transfer qualifies as a like-kind exchange.” If you take cash out at closing, the agent withholds on that portion.
- A failed exchange: if the exchange “subsequently fails to meet the requirements of Code section 1031,” the seller must notify the Commissioner in writing within ten days after the section 1031(a)(3) periods expire and remit the amount that would have been withheld, as an estimated payment.
In practice the qualified intermediary holds the proceeds, the certification is signed before closing, and the deferred-gain figure on it should match the exchange paperwork. For how Massachusetts treats the deferred gain itself, see does a 1031 defer state capital gains tax.
Installment sales
A seller on an installment sale may elect at closing to have withholding apply only to the initial payment, again with a consent to Massachusetts jurisdiction for the tax on later instalments. Sales completed under the installment method before November 1, 2025 are not subject to withholding on payments received after that date.
Getting the money back
Withholding is a payment of tax, not the tax. The Department’s FAQ states that withholding in excess of the tax due on the return produces an overpayment, which the seller can have refunded or applied to estimated tax. A nonresident seller therefore files a Massachusetts nonresident return for the year of sale, reports the gain or the deferral, and claims the withheld amount.
What to do now
- Tell your closing attorney and your qualified intermediary that the sale is an exchange before the certification is drafted, and give them the deferred-gain figure.
- If you intend to take cash out, expect withholding on that amount and plan the net proceeds accordingly.
- Calendar day 180. If the exchange fails, the ten-day notice and payment are your obligation, not the agent’s.
- Read the state-level rules on our Massachusetts 1031 exchange page and the closing hub, then request a proposal if the sale is already under agreement.
