Maryland's nonresident withholding works differently from every other stacking state. The 8% (individuals) or 8.25% (entities) doesn't pass through a title-company escrow remittance — it's collected by the clerk of court directly, BEFORE the deed records. No withholding payment, no recording.
Maryland imposes a nonresident real-property withholding regime under Md. Tax-Gen. Code §10-912. The headline rates are 8% of the total payment for nonresident individuals and 8.25% for nonresident entities. What makes Maryland procedurally unusual: the withholding is not collected by the buyer's escrow or wired by the title company to the state comptroller. It's collected by the clerk of the circuit court at the time the deed is presented for recording.
The mechanics: the seller (or seller's representative) presents the closing package to the clerk along with Form MW506NRS and a check or wire for the withholding amount. The clerk receives the payment, certifies the Form MW506NRS, and only then accepts the deed for recording. If the form and payment are not in order, the deed does not record. Title cannot transfer until the state has its 8%.
This is materially different from a California Form 593 (filed with FTB after closing) or a Hawaii Form N-288 (remitted by the buyer within 20 days). Maryland front-loads the entire state collection into the recording step — making timing and form-readiness operationally critical.
A foreign seller closes on a $1,000,000.00 Bethesda house. Basis is $580,000.00. Gain is $420,000.00. With no MW506AE reduction certificate in place:
The deed cannot record until the $80,000.00 hits the clerk. That means $80,000.00 in seller-side funds has to be ready as part of the closing package — typically as a portion of the seller's net proceeds wired through the title company, presented to the clerk along with the form. If anything is wrong with the form (missing tax ID, wrong base, wrong rate for entity vs. individual), the recording stops and the closing stops with it.
The Maryland reduction process is Form MW506AE, filed with the Comptroller of Maryland BEFORE closing. The form requests a Certificate of Full or Partial Exemption based on the actual computed gain. The Comptroller reviews the seller's basis, capital improvements, and computed gain; issues a certificate; and the clerk at recording accepts the certificate in lieu of (or in reduction of) the headline 8% withholding.
The Comptroller's published guidance asks for submissions at least 21 days before closing. In practice, the firm files MW506AE 30-45 days pre-closing to leave room for follow-up correspondence. On a low-gain or no-gain sale (loss, treaty exemption, basis improvements bringing basis up to sales price), MW506AE can authorize a full exemption — the clerk records the deed without collecting Maryland withholding.
The federal piece, separately, has its own Form 8288-B path — filed with IRS Ogden, 60-90 days processing, same reduction logic. The two filings are independent. A complete pre-closing Maryland engagement runs BOTH the federal 8288-B and the state MW506AE in parallel, sequenced so that the certificates arrive in time for closing.
Three patterns we see consistently:
1. Skipping MW506AE. The seller's title company assumes Maryland will withhold and that the over-withholding will refund via the next year's MD nonresident return. That's true mechanically — but it leaves $80,000.00-plus stuck with the state for 12-18 months on a typical Bethesda or Potomac sale. Filing MW506AE 30+ days before closing keeps that cash at the closing table.
2. Entity vs. individual misclassification. Nonresident individuals are 8%. Nonresident entities are 8.25%. A foreign-owned LLC selling Maryland property runs the entity rate, not the individual rate. Getting this wrong on Form MW506NRS can mean the clerk refuses to record until corrected.
3. Deed-recording timing. Maryland clerks operate on their own schedule. A Friday afternoon closing with the clerk's office closing at 4:30 PM means the deed records Monday, which means the Maryland withholding payment sits idle over the weekend. None of this affects the seller's tax outcome — but it affects when the deed actually records, which can matter for buyer financing contingencies.
Two returns reconcile the closing-table withholding the following year:
Federal withholding is not creditable against Maryland tax; Maryland withholding is not creditable against federal tax. Two parallel calculations, two parallel refunds. ITINs are required for both filings.
For Maryland foreign-seller engagements, the firm prepares Form 8288-B (federal) and Form MW506AE (state) in parallel when there is pre-closing runway, sequenced so the certificates arrive before the deed-recording day. We coordinate with the Maryland title company / closing attorney to make sure the MW506NRS at the clerk's window matches the certificate, prepare the Form 8288 / 8288-A federal package within the 20-day deadline, run ITIN applications as needed, and prepare the eventual federal Form 1040-NR and Maryland Form 505 the following filing season. Engagement is direct with the seller or buyer; no fee to the Maryland title or escrow company.
For the Maryland state landing page and intake form, see FIRPTA Maryland: Foreign-Seller Closings. For the federal mechanics in depth, see the Foreign Sellers Guide.
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