Capital gains tax in Maryland (2026): selling a business, real estate or farm

The 2% capital gains surtax and its $350,000 cliff

The Budget Reconciliation and Financing Act of 2025 (Chapter 604) added Tax-General 10-105(a)(3): for tax years beginning after Dec. 31, 2024, an individual whose federal adjusted gross income exceeds $350,000 pays an additional 2% on the net capital gain included in Maryland income. Technical Bulletin 58 (Dec. 29, 2025) confirms the $350,000 line applies regardless of filing status, so a married couple gets the same threshold as a single filer, and it reaches gains passed through from partnerships, S corporations and trusts.

It works like a switch, not a bracket. Once AGI crosses $350,000, the 2% (TB-58, 2025) applies to all of the net capital gain, not just the excess. In the second and third examples, a couple's gain grows from $140,000 to $160,000 and their AGI moves from $340,000 to $360,000; Maryland tax rises by $5,140 on $20,000 more gain, most of it the surtax on the full $160,000. An installment sale or year-end timing can keep each year under it.

What is excluded from the 2% surtax

Tax-General 10-105(a)(3)(ii) and TB-58 (2025) carve out gain from:

• A primary residence sold for less than $1,500,000 (single-family home, townhome, row home, condo or co-op, with its land and accessory unit).
• Assets inside 401(k), 403(b), 457(b), IRA, Roth IRA and other retirement plans.
• Cattle, horses or breeding livestock held over 12 months, if more than 50% of the year's gross income comes from farming or ranching (the 2025 statute counts the sale itself in that test).
• Land under, or sold subject to, a conservation, agricultural or forest preservation easement.
• Business property whose cost is deductible under IRC 179, and nonprofit-owned affordable housing.

Farmland without an easement, rental buildings, business goodwill and stock are not on the list. The easement exclusion makes agricultural conservation easements worth a look for Maryland farm sellers.

Stacking it up: state, county, surtax and federal

Maryland's top state brackets for 2025 and later are 6.25% from $600,001 to $1.2 million and 6.5% above $1.2 million of joint taxable income (Tax-General 10-105). County and Baltimore City tax applies to the same income at 2.25% to 3.30% for 2026; Allegany rose to 3.20% and Kent to 3.30% this year, and Dorchester is at 3.30% (Comptroller Tax Alert, rev. Dec. 22, 2025). With the 2% surtax, the top combined Maryland rate on a large gain is about 11.8%.

In the first example a couple selling a business or property for a $2 million gain owes $234,000 to Maryland, $407,847 in federal income tax and $76,000 of net investment income tax: $717,847 in all, an effective 35.9% of the gain. Federal rates are summarized in one line: 0%, 15% or 20%, with 20% above $613,700 of joint taxable income for 2026 (Rev. Proc. 2025-32); the capital gains guide has the rest.

Nonresident sellers and settlement withholding

When a nonresident individual sells Maryland real property, the settlement agent must withhold 8.75% of the total payment; for a nonresident entity it is 8.25% (Tax-General 10-912; Tax Alert, 2025). "Total payment" means net proceeds after paying off liens and closing costs, not the gross price. The withholding rate does not include the 2% surtax, so TB-58 tells nonresidents expecting the surtax to make an extra estimated payment, and a seller whose price exceeds $1.5 million cannot request a tentative refund before filing the year-end return.

Nonresidents do not pay county tax, but Tax-General 10-106.1 imposes a special nonresident tax at the lowest county rate. Moving away removes Maryland's claim on stock gain, not on Maryland real estate. See moving before a sale.

Depreciation, 1031 exchanges and transfer taxes

Maryland decouples from federal bonus depreciation and limits Section 179 expensing to $25,000 with a $200,000 phase-out (Tax-General 10-210.1), so Maryland basis in business equipment is often higher than federal basis and the Maryland gain at sale can be lower. A 1031 exchange that defers the federal gain also defers Maryland tax, because Maryland starts from federal adjusted gross income (TB-58, 2025); see 1031 exchange.

Deeds carry a state transfer tax of 0.5% of the consideration (Tax-Property 13-203, 2026), cut to 0.25% and paid entirely by the seller on a sale to a first-time Maryland homebuyer, plus county transfer and recordation taxes that vary by county.

Estate and inheritance taxes on Maryland property

Maryland is the only state that keeps both. The estate tax applies above a $5,000,000 exclusion (Tax-General 7-309), and the inheritance tax is 10% of the clear value passing to heirs outside the exempt group; spouses, parents, grandparents, children and their descendants, their spouses and siblings are exempt (Tax-General 7-204). Heirs still get a federal basis step-up, so holding until death can erase gain that a lifetime sale would trigger. Related pages: sale of a business, rental property, Virginia and District of Columbia.

Hans studies the tax side of Maryland sales and models the surtax line, county rate and timing together. Get the Big Sale Tax Analysis.

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