On October 8, 2024, the Massachusetts DOR issued working draft regulation 830 CMR 62B.2.4 that explains the proposed withholding requirements on the sale of real estate in the Commonwealth by non-residents. The effective date of the regulation has still yet to be determined and currently withholding is not required on sales of Massachusetts real estate. If the regulations are promulgated, Massachusetts non-resident individual transferors of Massachusetts real estate subject to the withholding regulations would be subject to a withholding tax of 5% or 9% (to the extent the net gain on the sale exceeds the taxable income threshold for imposing the 4% surtax). Withholding is only imposed on the net gain if the gross sales price for the real estate sold or transferred is at least $1 million and the transferor is not exempt from withholding. Net gain is defined in the proposed regulations as the gross sales price from the transfer, reduced by the sum of the adjusted basis of the property sold and the expenses directly related to the Settlement.
The working draft provide for a number of exemptions that allow for a partial or full elimination of the withholding, including the following:
- Sales where the required withholding amount is greater than the amount by which the sales price exceeds amount used for the payment of the seller’s debts secured by a mortgage or other lien.
- Foreclosure sales where the sales price does not exceed the debt secured by the property
- Certain involuntary or compulsory conversion of the property under Code Sec. 1033
- Sales where the property is partly located in Massachusetts
- Sales where a portion of the gain is not recognized under M.G.L. c. 62 or M.G.L. c. 63 (this includes 1031 conversions)
The person responsible for withholding the tax and remitting it to the DOR is the withholding agent. Generally, the withholding agent is the person responsible for closing a real estate transaction, including an attorney, escrow company, or title company, or any other person who receives and disburses the consideration or value for a Transfer of Real Estate. For transfers where there is no withholding agent, the transferee is required to act as the withholding agent.
The withholding agent is required to file the withholding return and a transferor’s certification, if applicable, and remit the withholding tax payment to the DOR within 10 days o the closing of the sale.
The working draft regulations provide additional guidance on transactions with multiple transferors and transfers involving other Code sections including installment sales.
Taxpayers and other interest parties have until October 29, 2024, to comment on the working draft regulation. A second opportunity to comment on the regulation will arise after it is formally proposed, and a hearing date is set.
