If you’re getting ready to sell a house in Maryland and someone mentioned capital gains tax, we understand why you’re pausing. Nobody wants to sell a house and then get surprised by a tax bill they didn’t see coming. So let’s walk through this together, plainly, the way we’d explain it to a neighbor sitting at our kitchen table.
The short version is this: most people who sell their primary home in Maryland pay nothing at all in capital gains tax. But not everyone. And the rules changed a little starting in 2025. We’ll go through both the good news and the parts that require more attention, because that’s what you actually need, not a sales pitch.
How Maryland Taxes Home Sale Gains
Here’s the first thing that surprises people. Maryland doesn’t have a special lower tax rate for capital gains the way the federal government does. Maryland just treats your gain as ordinary income. That means it gets taxed at the same rates as your paycheck, somewhere between 2.25% and 5.75% depending on your tax bracket.
On top of that, every county in Maryland adds its own local income tax, sometimes called the piggyback tax. That adds another 2.25% to 3.2%. Add the state and county pieces together and in the higher-tax counties you could be looking at a combined rate of close to 9% on the taxable portion of your gain.
That sounds like a lot. But notice we said “taxable portion.” For most home sellers, that portion is zero.
Why Most Primary Residence Sellers Pay Nothing
If you’ve lived in your house as your primary residence for at least 2 of the last 5 years, and you haven’t already used this tax break in the past 2 years, the federal government lets you exclude a big chunk of your gain from taxes entirely. Single filers can exclude up to $250,000 of gain. Married couples filing jointly can exclude up to $500,000.
Maryland follows the federal rule here, so whatever gain the federal government excludes, Maryland excludes too. That’s why so many homeowners who sell their primary residence walk away without owing any Maryland capital gains tax at all. If your gain fits inside that exclusion, and for most people selling an average home it does, this whole conversation becomes much simpler than it first sounded.
Gain, by the way, isn’t your sale price. It’s your sale price minus what you originally paid, minus certain improvements you made along the way. So even a house that sold for a healthy price might show a much smaller taxable gain once you account for what you put into it and what you paid for it originally.
When You Might Actually Owe Something
If your gain is larger than the exclusion amount, the portion above that line gets taxed. Maryland taxes it as ordinary income at that 2.25% to 5.75% state rate, plus the county piggyback tax on top. You’d also owe federal long-term capital gains tax on that excess, at 0%, 15%, or 20% depending on your income, and possibly an additional 3.8% federal Net Investment Income Tax if you’re a higher earner.
There’s also a newer wrinkle worth knowing about. Starting in tax year 2025, Maryland added a 2% surtax on net capital gains for taxpayers whose federal adjusted gross income is above $350,000. The good news, if you’re selling your primary home for less than $1.5 million, that surtax doesn’t apply to you. It’s aimed at larger transactions and higher earners, not the typical family selling their house.
If you held the property for a year or less before selling, different rules apply. Short-term gains get taxed at ordinary federal rates, which run from 10% to 37%, plus Maryland’s ordinary rates. This mostly matters for investment properties or houses that were bought and sold quickly, not for someone who’s lived in their home for years.
What If You’re Not a Maryland Resident?
If you live out of state but you’re selling property here, Maryland requires 8% withholding on your total sale proceeds at closing. This trips people up because it feels like an extra tax, but it isn’t. It’s a prepayment toward whatever you’ll actually owe. You settle up the real amount when you file your tax return, and if the withholding was more than what you owed, you get the difference back.
Selling a House You Inherited
This is one of the most common questions we hear, and it’s often the one with the best news attached. If you inherited a house, the property usually gets what’s called a step-up in basis. That means for tax purposes, the home’s value resets to its fair market value on the date the person passed away, not what they originally paid for it decades ago.
Here’s why that matters so much. Suppose someone bought a house years ago for a modest price, and by the time you inherited it, it was worth significantly more. Without the step-up, you’d be looking at a large taxable gain based on that old purchase price. With the step-up, your basis is the value on the date of death, so if you sell not long after inheriting, your taxable gain might be small or even nothing at all.
This is a big part of why inheriting a house isn’t automatically the tax headache people fear. We’ve written more about how this works, along with the probate process itself, on our page about inherited property in Maryland. If you’re navigating a family member’s estate right now, that’s worth a look.
A Simple Way to Think It Through
Suppose you’re a single filer and you’ve owned and lived in your home for 3 of the last 5 years. Suppose your gain, sale price minus what you paid and minus qualifying improvements, comes out to $180,000. Since that’s under the $250,000 exclusion for single filers, your entire gain would be excluded federally, and Maryland would follow that exclusion too. In this hypothetical, you’d owe $0 in capital gains tax on the sale.
Now suppose a married couple sells a home and their gain is $520,000. The first $500,000 is excluded under the joint filer exclusion. The remaining $20,000 would be taxable, subject to Maryland’s 2.25% to 5.75% rate plus their county’s piggyback tax, and federal long-term capital gains rates as well.
These are simplified examples to show the mechanism, not a prediction of what you’ll owe. Your actual numbers depend on your purchase price, your improvements, your filing status, your county, and your income. A CPA or tax professional who can look at your specific numbers is the right person to give you an exact figure.
Where to Go From Here
Taxes are only one piece of deciding how to sell. If you want to understand the full picture of what selling actually costs, including things beyond taxes, take a look at our page on what it really costs to sell a house in Maryland.
And if you’re still sorting out what makes sense for your situation, whether that’s listing with an agent, selling it yourself, or selling directly to us, we’re happy to just talk it through. No pressure, no obligation. If a cash sale genuinely fits what you need, we’ll make a fair offer. If it doesn’t, we’ll tell you that too. Reach out to Deep Roots REI whenever you’re ready, and we’ll help you figure out the path that actually makes sense for you.