Like-Kind Exchanges are fairly identical state-by-state. However, locally, in Maryland we have a big pitfall to watch out for when conducting a 1031 Exchange. When your seller is a Non-Resident of Maryland (does not personally call Maryland their domicile) and they plan to conduct a like-kind exchange upon the sale of a Maryland property, the client must file an exemption form with the Maryland State Comptroller at least 21 days in advance of the relinquished property settlement.
While this may seem trivial, I have seen this one item derail both portfolio sales of one billion dollars and Baltimore row house sales for $50,000.
To obtain an exemption certificate, nonresident exchangors must submit by mail to the Comptroller of Maryland, twenty-one days in advance of settlement, Maryland Form MW506AE, Application for Certificate of Full or Partial Exemption. The Comptroller’s Office will then issue the taxpayer their certificate.
If a nonresident taxpayer has income from a Maryland property (even if there is a net loss), they need to file a Maryland Form 505, Maryland Nonresidential Income Tax Return, annually. If the Form 505 has not been filed for previous years, the Comptroller’s office may reject the application for exemption as there is no Maryland record that the property was held for business or rental purposes to qualify for the IRC Section 1031 exemption.
No tax will be collected if the seller certifies the property was their principal residence in accordance with the federal rules in IRC Section 121.
If an individual or a corporation has paid withholding tax at settlement in excess of the amount owed, they may file an Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents (Maryland Form MW506NRS). The request for refund may be filed with the Comptroller after 60 days have elapsed from the date the tax was paid to the Clerk of the Court or Department of Assessments and Taxation.
Here is a link to the form:
http://forms.marylandtaxes.com/current_forms/MW506AE.pdf.
Call with any questions.
As always, for your clients seeking a Qualified Intermediary, don't hesitate to reach out and schedule a free in-person consultation in the DC area.
Sincerely,
James Brennan Esq.,LL.M.
Exchange Solutions Group, LLC
Principal/Corporate Counsel
11150 Sunset Hills Road, Suite 300
Reston, VA 20190
Direct 703.801.4178
Fax 703.663.9889
www.1031esgroup.comSphere: Related Content
