What Is the New DOR Withholding Rule for Sellers in Massachusetts?
Beginning November 1, 2025, the Massachusetts Department of Revenue (DOR) implemented a new real estate withholding rule that affects certain property sellers. The goal of the rule is to ensure the Commonwealth collects estimated tax from sellers who may owe Massachusetts capital gains tax — especially in higher-value transactions.
If you’re selling property in Massachusetts, here’s what you need to know.
Who Is Affected?
This withholding rule generally applies when:
The property being sold is located in Massachusetts,
The gross sales price is $1,000,000 or more, and
The seller does not qualify for an exemption.
If all conditions are met, the settlement agent must determine whether tax needs to be withheld from the seller’s proceeds at closing.
What Does “Withholding” Mean?
“Withholding” means a portion of the seller’s sale proceeds is held back at closing and sent directly to the DOR as an estimated pre-payment of potential tax owed on the gain.
This is not necessarily the final tax amount. After closing, the seller files their Massachusetts tax return and reconciles the actual tax due. If too much was withheld, the seller may receive a refund; if too little was withheld, additional tax may be owed.
How Much Is Withheld?
There are two possible calculation methods:
1. Standard Method – 4% of the Gross Sales Price
This is the default rule. Unless a seller elects otherwise, the settlement agent withholds 4% of the property’s gross sale price.
2. Alternative Method – Estimated Gain
A seller may choose to withhold based on the estimated gain from the sale multiplied by the appropriate Massachusetts tax rate.
To use this method, the seller must provide supporting documentation at closing.
Who Handles the Withholding?
The withholding agent — typically the settlement or closing attorney — is responsible for:
Determining whether withholding applies,
Withholding the required amount from the seller’s proceeds,
Filing the withholding return with the DOR, and
Remitting the withheld funds within 10 days of closing.
Even if no money is withheld (because the seller qualifies for an exemption), the settlement agent must still file a return confirming that no withholding was required.
Who Is Exempt From Withholding?
Some sellers may qualify for an exemption and avoid withholding altogether. Exemptions generally include:
Massachusetts residents who will file a standard MA tax return,
Certain pass-through entities that already withhold on gains for non-resident owners,
Corporations with an ongoing Massachusetts business presence,
Tax-exempt organizations,
Government entities and certain trusts, and
Like-kind exchange transactions for gain that will be deferred.
To claim an exemption, the seller must provide the required certification before closing. If the form is not provided on time, withholding may still occur even if the seller is technically exempt.
Why This Matters for Sellers
This rule can significantly impact a seller’s cash at closing, especially in high-value transactions. It also adds additional forms and disclosures to the closing process. Sellers — particularly non-residents or those planning to move out of state — should review their withholding status early in the listing process to avoid surprises.
Legal Disclaimer
This blog post is for general informational purposes only and does not constitute legal or tax advice. Laws and rules can change and may apply differently based on individual circumstances. For advice specific to your situation, consult a qualified Massachusetts real estate attorney or tax professional.
