topic As a Virginia resident, when I sell the townhouse years down the road, how much additional taxes and fees would I owe due to not being a Maryland resident? in Investors & landlords

As a Virginia resident, when I sell the townhouse years down the road, how much additional taxes and fees would I owe due to not being a Maryland resident?

tk01kj — Wed, 23 Dec 2020 20:32:14 GMT

I am currently a resident of Virginia and I am planning on buying a townhouse in Maryland using all cash ($350k~). When I sell the townhouse years down the road, how much additional taxes and fees would I owe due to not being a Maryland resident? From reading online, it seems a 7.5% tax withholding is likely but not sure what the difference will be based on tax bracket and sales price.

Re: As a Virginia resident, when I sell the townhouse years down the road, how much additional ta...

ErnieS0 — Mon, 25 Jan 2021 03:00:05 GMT

It depends. The additional tax you would owe as a result of not being a Maryland resident would depend upon the tax rates of both Maryland and Virginia at the time of sale and the profit you made on your townhouse.

You also did not say whether you are buying the townhouse as a second home, an investment or as a rental property. The tax treatment in each case would be different. For example, a loss on the sale of a second home would not be deductible, but would be in cases of an investment property or rental. Rental properties are depreciated, i.e. a portion of their value is written off each year.

In every case, Maryland will tax you on the net profit from the sale. Virginia will give you a tax credit for tax paid to Maryland up to the amount of VA that would be due if the sale had taken place in VA. Currently, the highest tax rate in both Maryland and Virginia is 5.75%, but VA’s top rate starts at $17,001 while MD doesn’t hit the top rate until income reaches $300,000.

VA tax table and MD tax table.

Re: As a Virginia resident, when I sell the townhouse years down the road, how much additional taxes and fees would I owe due to not being a Maryland resident?

Hal_Al — Mon, 25 Jan 2021 03:17:03 GMT

The 7.5% MD tax withholding is not the actual tax. It's just a high estimate of the tax due to make sure you pay. You'll get much of that refunded when you file an MD return reporting the sale.