Jay Peabody

The Massachusetts Department of Revenue (DOR) has proposed a new regulation – 830 CMR 62B.2.4 – that could significantly impact high-value real estate transactions involving non-Massachusetts resident sellers.

If enacted, this rule would require a withholding tax on the sale or transfer of Massachusetts real estate when the gross sales price exceeds $1 million and the seller does not reside in the commonwealth.

The goal of the regulation is to ensure that Massachusetts collects the appropriate personal income tax or corporate excise tax from out-of-state sellers who might otherwise avoid filing or paying taxes in the state.

This approach mirrors similar tax structures already in place in neighboring states like Rhode Island, which have long required withholding on certain real estate transactions involving non-residents.

Under the proposal, the responsibility for withholding and remitting the tax falls squarely on the closing agent – typically a real estate attorney or title company. The agent must calculate the appropriate withholding amount, based on the net gain from the sale, and submit it to the DOR within 10 days of the closing date.

Allison Fleet

This is a notable shift in responsibility, placing new administrative and compliance burdens on closing professionals.

The withholding rate varies depending on the nature of the seller: for example, out-of-state corporate sellers would be subject to an 8 percent withholding rate, while other transferors may fall within a range of 5 percent to 9 percent.

Noteworthy Exemptions and Considerations

Importantly, the regulation includes several exemptions.

Massachusetts residents, corporations with an ongoing business presence in the state, and certain pass-through entities may be exempt from the withholding requirement – provided they submit a transferor’s certification to the closing agent at or before the closing.

This certification serves as proof of exemption and must be completed accurately and in a timely manner. Even if the seller qualifies for an exemption, the transferor’s certification is still required for every transaction, meaning all sellers – resident or not – will need to engage with this new documentation process.

Kelley O’Donnell

The regulation also outlines special considerations for more complex transactions, such as like-kind exchanges under Section 1031 of the Internal Revenue Code and installment sales.

These types of deals may be subject to different withholding calculations or timelines, and sellers involved in such transactions should consult with legal and tax professionals early in the process to ensure compliance.

The DOR has indicated that additional guidance may be forthcoming to clarify how these variations will be handled under the new rule.

Prepare for Implementation

Although the proposed regulation is not yet in effect, the DOR anticipates implementation before the end of 2025.

This gives real estate professionals, closing agents, and sellers a short window of time to prepare, and because the regulation introduces strict deadlines and new documentation requirements, early planning is essential.

Closing agents should begin reviewing their internal processes and training staff to handle the new withholding obligations.

Sellers – especially those who reside outside Massachusetts – should be aware of the potential impact on their net proceeds and timeline, and factor these considerations into their negotiations and closing preparations.

For buyers, the regulation may not directly affect their tax obligations, but it could influence the pace and complexity of the closing process. Delays in documentation or misunderstandings about the seller’s residency status could lead to last-minute complications.

Buyers working with non-resident sellers should ensure that all parties are informed and proactive about the new requirements to avoid disruptions.

Stay Informed and Seek Counsel

Given the complexity and potential financial implications of this regulation, engaging experienced legal counsel is strongly recommended.

Whether you’re a seller trying to determine if the withholding applies to your transaction, a closing agent preparing for new responsibilities, or a buyer seeking a smooth and timely closing, having knowledgeable legal support can make all the difference.

In summary, Massachusetts is taking steps to tighten its tax collection on high-value real estate transactions involving non-resident sellers. While the regulation is still in the proposal stage, its anticipated rollout before year-end means that real estate professionals and clients should begin preparing now.

The new rule introduces meaningful changes to the closing process, including mandatory certifications, strict deadlines, and potential withholding of sale proceeds.

Staying informed and seeking tailored legal advice will be key to ensuring compliance and avoiding costly delays or penalties once the regulation takes effect.

Jay Peabody, Allison Fleet and Kelley O’Donnell are commercial real estate attorneys at Boston-based law firm Partridge Snow & Hahn LLP. Peabody is co-managing partner and chair of the transactional practice, Fleet is partner and O’Donnell is an associate.