You can save time, money, and frustration selling your home in Maine by knowing how property taxes work. All sellers need to know the idiosyncrasies of Maine’s tax system, from assessment dates to nonresident withholding rules. To make sure you are not caught off guard during the transaction process, let’s dissect the key information.
1. Date of Assessment Matters
Maine property taxes are determined based on ownership as of April 1st of a given year. This means that although the property may be sold during the course of the year, the property taxes for next year still belong to the owner of record on April 1st.
Why this matters to sellers:
You are still responsible for paying the taxes due that year if you sell your house after April 1st. Property taxes are typically prorated between the buyer and the seller, so you can get some of your money back. Nevertheless, you should account for this in your financial planning.
2. Transfer Tax on Real Estate
A real estate transfer tax of $2.20 for every $500 of the sale price, or 0.44% of the entire sale price, is charged in Maine when real property is sold. Both parties pay 0.22% of this tax, which is usually split equally between the buyer and the seller.
For example:
- The entire transfer tax on a $300,000 property sale would be $1,320. Both sides would pay $660.
Seller tip: Your title company or closing agent will usually handle this tax, but it’s always a good idea to double-check who pays what, especially in private transactions.
3. Nonresident Withholding Requirement
You are required under state law to withhold 2.5% of the sale price at closing if you were not living in Maine at the time the property was sold. This is an advance payment to ensure that you cover any state income taxes payable on the capital gains of the sale; it is not a penalty.
For example:
- $10,000 (2.5%) can be withheld if you are a nonresident who sells a home for $400,000 until you file a Maine income tax return reporting the actual gain or loss.
Good to know: If the gain is minor or you meet certain criteria, you may be able to request a waiver or exemption from this withholding.
Before you close, speak to a tax consultant or accountant about this possibility.
4. Exclusion from Federal Capital Gains Tax
If an owner has occupied their home as their primary residence for two out of the past five years, they can be exempt from federal capital gains taxation. You can exclude amounts up to:
- Making $250,000 as a single owner
- $500,000 for joint filing for married couples.
What it means for you:
If you pass these criteria, you can probably sell your property and walk away with a considerable profit—untaxed—if you’ve owned the property for many years and its worth has appreciated.
Keep in mind that rental houses or vacation homes do not qualify under this exception; only your main home does.
5. Pro Tip: Talk to a Tax Professional
Tax laws are complex and vary based on your own circumstances. A tax professional or certified public accountant familiar with Maine real estate transactions must be consulted prior to listing your home or taking an offer.
- They can help you:
- Maximize potential tax exemptions
- Identify your withholding obligations.
- Ensure compliance with federal and state tax laws.
Having a buyer is merely half of selling your home in Maine; the other is knowing how taxes can cut into your profit margin. Having knowledge about Maine’s property tax system will allow you to make improved plans and avoid unexpected closing fees, whether selling from out of state or residing there.