Do Non-Residents Have to Pay Withholding Tax When Selling Real Estate in Massachusetts?

By Kyle Gibbons, Head of Acquisitions, CommercialGRP

When a non-resident sells real estate in Massachusetts, the transaction triggers an important — and often misunderstood — tax consideration: the Massachusetts real estate withholding tax. Understanding how this tax works is essential for investors evaluating their exit strategies and net proceeds. At CommercialGRP, part of our disciplined acquisition and disposition process is anticipating these details early to protect returns and ensure transparency for our partners.

What Is the Massachusetts Non-Resident Withholding Tax?

Under Massachusetts law (M.G.L. Chapter 62B, §2), when a non-resident — an individual, trust, or business entity not domiciled in the state — sells or transfers Massachusetts real property, the buyer is required to withhold tax from the sale proceeds and remit it to the Massachusetts Department of Revenue (DOR).

This withholding serves as a prepayment of the seller’s potential Massachusetts income tax liability from the sale. It’s not an additional tax, but rather an estimated payment credited against the seller’s final state income tax due for that year.

How Much Is Withheld?

The standard withholding amount is 5% of the gross sales price (not the gain). However, the seller can apply for a Certificate of Exemption or Reduced Withholding Certificate from the DOR before closing if the expected tax liability will be less than the standard amount.

For example:

  • If a non-resident sells an industrial property for $2,000,000, the buyer must withhold $100,000 (5%) unless the seller provides an approved certificate reducing or eliminating the amount.

  • The DOR typically issues these certificates when documentation demonstrates that the taxable gain — after accounting for basis, improvements, and expenses — is lower than assumed under the standard calculation.

This proactive approach is why our team models tax implications as part of every exit scenario.

Why It Matters for Investors

The withholding can significantly impact cash flow at disposition, particularly for out-of-state or foreign investors. Planning ahead can minimize unnecessary withholding and streamline closings. At CommercialGRP, we emphasize three principles that reflect our core values in every transaction:

  • Motivated & Committed: We integrate tax planning and compliance into our disciplined sourcing and disposition process.

  • Outstanding Communicators: We maintain transparency with investors and partners regarding potential liabilities and documentation requirements.

  • Self-Reliant & Detail-Oriented: We manage the details — from coordinating with tax advisors to verifying withholding certificates — to ensure accuracy and compliance.

By doing so, we uphold our commitment to honesty and integrity, ensuring that our exits are as fair and value-driven as our acquisitions.

Strategic Implications in Exit Planning

For institutional and private investors alike, understanding state-specific tax obligations is part of executing a smart, risk-adjusted exit strategy. Massachusetts’ withholding requirement reinforces why local market knowledge and proactive planning are critical.

When evaluating exit scenarios — whether through a direct sale, portfolio disposition, or recapitalization — our team models both gross and net proceeds after taxes and transaction costs. This precision allows investors to make informed decisions and avoid last-minute surprises that could disrupt timelines or returns.

(Read more about our approach in Exit Strategies in Massachusetts CRE )

Key Takeaways

  • Non-residents selling Massachusetts real estate must generally pay 5% withholding on the gross sales price.

  • The buyer is responsible for withholding and remitting the tax.

  • Sellers can apply in advance for a Reduced Withholding Certificate if their actual taxable gain is lower.

  • Early tax planning is critical to maximizing net proceeds and ensuring compliance.

Final Thoughts

At CommercialGRP, our mission goes beyond finding assets that fit our buy box. We focus on executing acquisitions and exits that create lasting value — for investors, tenants, and communities alike. Navigating Massachusetts’ tax and regulatory framework with precision is one more way we deliver disciplined, high-integrity results.

If you’re a non-resident investor considering a Massachusetts acquisition or disposition, connect with our acquisitions team to discuss how we can help structure transactions for maximum efficiency and long-term success.