Massachusetts Unveils New Real Estate Withholding Tax on High-Value Property Transfers 

Summary: Massachusetts enacted a new regulation that imposes a withholding tax obligation on certain sales of real estate by nonresident individuals and some corporations that close on or after November 1, 2025.

When we hear the term “withholding taxes,” we immediately think about the income taxes that are withheld from our paychecks. However, state-level withholding taxes extended far beyond paychecks. One common type of withholding is the requirement for pass-through entities to withhold taxes on income allocated and/or distributed to non-resident owners. 

Another, albeit less common, form of state withholding tax is imposed on transfers of real estate by certain non-resident transferors. On August 15, 2025, Massachusetts adopted a new regulation imposing this type of withholding tax for real estate closings that occur on or after November 1, 2025.[1] 

Massachusetts’ New Real Estate Withholding Tax Requirements

The withholding tax applies to the transfer of interests in real property located in Massachusetts when the gross sales price equals or exceeds $1,000,000. The “gross sales price” includes cash paid, other property transferred, and any liability assumed by the transferee. The obligation to withhold is typically on the “withholding agent,” who is the person responsible for closing the transaction, such as an attorney, escrow company, title company, or any other person who receives and disburses the consideration. In the absence of a withholding agent, the transferee is required to act as the withholding agent.

Calculating the Withholding Tax

The base tax calculation is 4% of the gross sales prices. However, a seller may elect to use the alternative calculation, which would apply the applicable rate to the transferor’s estimated net gain, which equals the gross sales price less the transferor’s estimated adjusted basis less any applicable settlement expenses. The applicable rate for individual and corporate sellers is currently 5% and 8%, respectively. In addition, for individual sellers, if the estimated net gain exceeds the surtax threshold,[2] an additional 4% must be withheld on the amount of estimated net gain in excess of that threshold.

For all transfers with a gross sales price in excess of $1,000,000, transferors are required to submit a Transferor’s Certification to the withholding agent, and this certification is also used to make the alternative calculation election.  Withholding agents must submit a withholding tax return (Form NRW), the Transferor’s Certification, and the withholding tax to the state within 10 days of closing.[3]

Exemptions: Who Does Not Have to Withhold?

Withholding tax does not apply to individual sellers who are full-year residents, meaning that they have been a resident from January 1 through the date of the closing and represent that they will continue to be a resident.

Exemptions also apply to corporations (or any member of the combined group of which it is a member) with a continuing business presence in the state. A corporation has a business presence in the state if it:

1. Filed a Massachusetts tax return for the tax year prior to the year of the transfer and
2. Maintains a place of business in the state at the time of the transfer. 

In order to meet the exemption requirements, the corporation must represent that (i) it or a member of its combined group is subject to the requirement to report the transfer on a Massachusetts tax return for the current year, and that it or that member will report the transfer and (ii) it is not selling or transferring all or substantially all of its Massachusetts assets that are subject to the notification requirement under Mass. Gen. Laws Chapter 62C, Section 51.

Other exempt transferors include:

• Pass-through entities
• Publicly traded partnerships
• Resident trusts or estates with a resident decedent
• Certain tax-exempt entities
• U.S. and state government (and its political subdivisions and agencies).[4]

Special Transfer Provisions

The regulation exempts certain transfers to the extent that gain is not recognized under state law, including:

• The transfer of a principal residence
• Transfers between spouses pursuant to a divorce
• Transfers that qualify for nonrecognition under Internal Revenue Code (IRC) Section 351 or that qualify as a tax-free reorganization under IRC Section 368.

For like-kind exchanges under IRC Section 1031, withholding is generally not required to the extent the gain is deferred. On the Transferor’s Certification, the transferor must state the amount gained being deferred and consent to personal jurisdiction in the state for the collection of tax that will be due when the gain is realized. If a transfer that was intended to meet the like-kind exchange requirements at closing subsequently fails to do so, the transferor must notify the state within 10 days and remit the applicable withholding tax by the due date for the next estimated payment.

For installment sales, the transferor may elect to have withholding tax apply only to the initial payment amount instead of the entire amount. That election is made on the Transferor’s Certification, along with a statement consenting to personal jurisdiction in the state for the collection of taxes due on subsequent installment payments.

Final Thoughts: Significant Responsibilities on Sellers, Buyers, and Closing Agents

All parties involved in a real estate transaction in Massachusetts should take the time to familiarize themselves with these new requirements. In particular, withholding agents need to pay special attention as they may be subject to interest and penalties for failure to comply with their withholding obligations.

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[1] 830 CMR 62B.2.4.  The state also published a set of frequently asked questions and answers related to this new tax obligation.

[2] For tax year 2025, the surtax threshold I $1,083,150.  It is subject to an annual increase for inflation.

[3] At this time, neither Form NRW nor the Transferor’s Certification form are available on the state’s website.  The state may require the withholding agent to submit other supporting documentation.

[4] Please consult the guidance for additional exempt transferors.