Maryland
Reviewed June 2026Federal §453 conformity
Yes — Maryland starts from the federal return, so installment gain is taxed as payments arrive. The rate stack is where attention belongs: state brackets now reach 6.5%, every county adds its own income tax of roughly 2.25% to 3.3%, and since 2025 a 2% surcharge applies to capital gains for anyone whose federal AGI exceeds $350,000. That surcharge is a cliff: one dollar of income over the line and the extra 2% hits every dollar of the year's net capital gain, not just the excess. Which makes the installment schedule the most powerful Maryland tax tool in the deal — payment years that keep federal AGI under $350,000 owe no surcharge at all.
Nonresident sourcing
Gain from Maryland real estate or a business operating in Maryland is Maryland income wherever the seller lives, and the payments keep that character — including the surcharge, which reaches nonresidents' Maryland capital gain when their federal AGI clears the threshold. Intangible gain generally follows the seller home.
Withholding
Maryland collects at the courthouse: a nonresident selling Maryland real estate has tax withheld from the proceeds — on the order of 8% for individuals — before the deed records. On an installment sale that default withholding is measured against the whole transaction while the cash arrives over years, so the reduced-withholding application keyed to the installment schedule should be filed before closing. A refund path exists after the fact, but the better answer is not to lend Maryland the money in the first place.
Selling, then moving (residency change)
Maryland-source gain stays Maryland's after a move; other gain travels with the seller, and no rule accelerates deferred gain at the border. The surcharge follows the same logic — a genuine former resident owes it only on Maryland-source capital gain thereafter.
Pass-through entity (PTE) tax election
Maryland's PTE election was among the first in the country, and it comes with two catches worth respecting. First, the entity-level tax does not include the 2% capital gains surcharge — electing owners over the AGI threshold still owe the surcharge personally, so the election covers the income tax but never the cliff. Second, Maryland's regime is the one that other states most often refuse to credit — a Maryland PTE tax paid on behalf of an out-of-state resident may or may not be usable against their home state's tax, and that question has to be answered for the specific home state before anyone models the benefit. Starting with 2026, resident members' entity-level base also expands to their full share of income, not just the Maryland-apportioned slice.
Estate and IRD
Maryland is the only state that runs both an estate tax and an inheritance tax. The estate tax starts at $5 million — and Maryland, unusually among states, lets a surviving spouse inherit the unused exemption. The inheritance tax turns on who receives: spouses, children, grandchildren, parents, and siblings take free of it, while nieces, nephews, and unrelated beneficiaries owe 10% — including on the value of an installment note routed their way. Map the note's beneficiaries early; the two taxes are calculated together but bite differently.
Planning notes
Maryland planning starts and ends with the $350,000 line: design the payment schedule against it, leave a buffer for the seller's other income, and remember that a schedule that tips one dollar over surcharges every dollar of that year's gain. In asset deals, sort the gain first — equipment and other §179-type business property may be excluded from the surcharge entirely, which changes what the schedule needs to protect. File the reduced-withholding application before closing for nonresident real estate sellers, price the PTE election knowing it never covers the surcharge, and route the note's inheritance with the 10% class list in hand.
Maryland's 2% capital gains surcharge is a cliff: once federal AGI exceeds $350,000, the surcharge applies to all of the year's net capital gain, not the excess. A payment schedule designed near the threshold needs a buffer for the seller's other income — and a schedule that stays under it avoids the surcharge entirely.
Gain from trade-or-business property of the kind eligible for §179 expensing is excluded from Maryland's capital gains surcharge. In an asset deal, sorting the gain by asset class before designing the schedule can shrink what the $350,000 line needs to protect.
Maryland withholds roughly 8% from a nonresident's real estate proceeds at closing, measured against the transaction rather than the year-one cash. The reduced-withholding application keyed to the installment schedule (Form MW506AE) belongs in the pre-closing checklist, not the post-closing cleanup.
Educational information, current as of the June 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
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