Massachusetts Non-Resident Real Estate Withholding: What Sellers Need to Know Under the New Law
As of November 1, 2025, Massachusetts implemented a new real estate withholding requirement that directly impacts non-resident sellers of Massachusetts real property. The law adds another layer of tax compliance to Massachusetts real estate closings and requires early planning by sellers, Massachusetts closing attorneys, and accountants to avoid delays at the closing table.
For anyone selling Massachusetts real estate while living outside the Commonwealth — including Rhode Island residents who own Massachusetts property — understanding this law and addressing it early is essential.
Overview of the New Massachusetts Non-Resident Withholding Law
Under the new Massachusetts law, non-resident sellers of Massachusetts real estate may be subject to mandatory tax withholding at the time of sale, unless an exemption or reduced withholding applies.
The purpose of the law is to ensure that Massachusetts can collect any state income tax owed on the gain from the sale of in-state real estate by sellers who do not reside in Massachusetts.
This Massachusetts withholding requirement applies in addition to other federal or state withholding obligations that may already exist, including FIRPTA (Foreign Investment in Real Property Tax Act) for foreign nationals.
Key Features of the Massachusetts Non-Resident Withholding Law:
- Applies to sales of Massachusetts real property
- Withholding calculated based on sales price or gain
- Seller must apply for exemptions or reductions before closing
- Funds withheld are remitted to Massachusetts Department of Revenue
- Failure to comply can result in penalties and closing delays
Who Is Considered a Non-Resident Seller Under Massachusetts Law?
Generally, a seller may be treated as a non-resident for purposes of this Massachusetts law if:
- The seller is an individual who does not reside in Massachusetts, or
- The seller is an entity formed outside Massachusetts or not treated as a Massachusetts resident for tax purposes
Common Massachusetts Non-Resident Scenarios:
Rhode Island residents who own Massachusetts investment properties – Even if you live just across the border, you’re considered a non-resident for Massachusetts tax purposes.
Out-of-state landlords – Investors from Connecticut, New York, Florida, or other states who own rental properties in Boston, Worcester, Cambridge, or other Massachusetts communities.
Entities formed in other states – A Rhode Island LLC or Delaware corporation that owns Massachusetts real estate may be subject to withholding.
Importantly, residency for Massachusetts tax purposes is not always intuitive, and it may differ from mailing address or driver’s license location. This is one reason early review by a Massachusetts closing attorney is critical.
How the Massachusetts Withholding Works
At closing on Massachusetts real property, a portion of the sales proceeds may be required to be withheld and remitted to the Massachusetts Department of Revenue on behalf of the seller.
Key Points About Massachusetts Withholding:
The withholding is not necessarily the final tax owed – It functions as a prepayment or estimated tax payment toward any Massachusetts income tax due on the gain from the sale.
Sellers may later reconcile the amount withheld – When filing their Massachusetts tax return (Form 1-NR/PY for non-residents), sellers can claim credit for amounts withheld and receive refunds if they overpaid.
Without advance planning, this withholding can significantly affect the seller’s net proceeds at closing – Many non-resident sellers are surprised to learn that a substantial portion of their sale proceeds will be held back.
Massachusetts Withholding Calculation
The withholding amount is typically calculated as a percentage of either:
- The gross sales price, or
- The estimated gain on the sale
The exact calculation depends on the property type, sale price, and whether the seller has obtained approval for reduced withholding from the Massachusetts Department of Revenue.
Why Advance Planning Is Essential for Massachusetts Non-Resident Sellers
One of the most important aspects of the new Massachusetts law is that many of the required steps must be completed before closing.
Early in the Massachusetts Transaction, We Work To:
✓ Identify whether the seller is subject to Massachusetts non-resident withholding – Not all sellers are subject to the requirement, and determining status early prevents last-minute surprises.
✓ Determine whether an exemption or reduced withholding may apply – Massachusetts law provides certain exemptions and opportunities to reduce withholding based on expected tax liability.
✓ Coordinate with the seller’s accountant to analyze potential Massachusetts tax exposure and support applications for reduced withholding.
✓ Prepare required applications or certifications in advance of the Massachusetts closing date – Forms must be submitted to and approved by the Massachusetts Department of Revenue, which can take time.
Waiting until the week of closing often leads to:
- Delayed closings on Massachusetts property
- Unexpected escrow holdbacks
- Postponed recordings with the Massachusetts Registry of Deeds
- Frustrated buyers and sellers
The Role of the Seller’s Accountant in Massachusetts Transactions
Coordination between your Massachusetts closing attorney and your accountant is a critical part of the process.
The Accountant Typically Assists With:
- Estimating gain or loss on the Massachusetts real estate sale
- Determining whether full withholding is necessary under Massachusetts law
- Supporting requests for reduced withholding where permitted by Massachusetts Department of Revenue
- Ensuring post-closing Massachusetts tax filings (Form 1-NR/PY) properly account for amounts withheld
This collaborative approach between legal and tax professionals helps ensure Massachusetts compliance while avoiding unnecessary over-withholding.
What Happens at the Massachusetts Real Estate Closing
At closing on Massachusetts property, the withholding requirements are addressed directly on the HUD-1 or closing disclosure settlement statement.
Massachusetts Closing Process Includes:
Withholding the required amount from seller proceeds – The amount is deducted from what the seller receives at closing.
Preparing and executing required Massachusetts tax forms – Including seller certifications, withholding statements, and remittance forms.
Remitting funds to the Massachusetts Department of Revenue – The title company or closing attorney sends the withheld amount to Massachusetts DOR on behalf of the seller.
Providing documentation for the seller’s records and future Massachusetts tax filings – Sellers receive copies of all withholding forms to use when filing their Massachusetts non-resident return.
Proper handling at closing is essential to protect both the seller and the buyer, as failure to comply with Massachusetts law can result in penalties and liability.
Common Issues We Are Seeing in Massachusetts Transactions
Since the Massachusetts law took effect in November 2025, common challenges include:
Issue #1: Late Discovery
Sellers learning of the Massachusetts withholding requirement late in the transaction – Many sellers (especially Rhode Island residents) don’t realize they’re subject to Massachusetts withholding until days before closing.
Issue #2: Confusion with FIRPTA
Confusion between Massachusetts withholding and federal FIRPTA requirements – These are separate obligations, and some transactions may be subject to both.
Issue #3: Residency Assumptions
Incorrect assumptions about Massachusetts residency status – Having a Massachusetts mailing address doesn’t automatically make you a Massachusetts resident, and vice versa.
Issue #4: Documentation Delays
Massachusetts closings delayed due to missing approvals or documentation – Applications for reduced withholding can take weeks to process by Massachusetts DOR.
These issues are largely avoidable with early involvement of a Massachusetts closing attorney.
Massachusetts vs. Rhode Island: Key Differences for Property Owners
Many Rhode Island residents own investment properties or vacation homes in Massachusetts. Understanding how both states approach real estate taxation is important:
Rhode Island Real Estate Tax Rules:
- No similar non-resident withholding requirement (as of 2026)
- Rhode Island estate tax applies to property owned by RI residents
- Different recording and closing practices
Massachusetts Real Estate Tax Rules:
- New non-resident withholding requirement (effective Nov 1, 2025)
- Massachusetts estate tax with $2 million exemption
- Strict compliance requirements at closing
If you own property in both states, coordinating with legal and tax professionals familiar with Rhode Island and Massachusetts law is essential.
Exemptions and Reductions Available Under Massachusetts Law
Not all Massachusetts non-resident sellers are subject to full withholding. Exemptions and reductions may be available for:
- Sales with no gain or a loss
- Properties sold for under certain thresholds
- Sellers who can demonstrate limited Massachusetts tax liability
- Transactions involving specific property types
To claim an exemption or reduction, sellers must:
- File an application with Massachusetts Department of Revenue
- Provide supporting documentation
- Receive approval before the closing date
- Present the approval letter at closing
This process takes time, which is why early planning with your Massachusetts closing attorney and accountant is critical.
Final Thoughts on the Massachusetts Non-Resident Withholding Law
Massachusetts’s new non-resident real estate withholding law adds another important consideration for sellers who live outside the Commonwealth. While the withholding is not always a final tax — and may be fully or partially refundable — it can materially impact closing proceeds if not addressed in advance.
If you are selling Massachusetts real estate and do not reside in the state — including Rhode Island residents who own Massachusetts property — involving legal counsel early and coordinating with your accountant can help ensure compliance, avoid delays, and provide clarity well before the closing date.
At Pelletier Law, LLC, we routinely handle Massachusetts real estate closings for non-resident sellers and work closely with accountants and the Massachusetts Department of Revenue to streamline the withholding process.
Contact Pelletier Law, LLC for Legal Services in Rhode Island
Located in Lincoln, Rhode Island, Pelletier Law, LLC serves clients throughout Rhode Island and Massachusetts.
Phone: 401-580-3059
Address: 300 Front Street, Lincoln, RI 02865