MA DOR’s New Non-Resident Withholding Rule: What It Means for Brookline Real Estate

Starting November 1, 2025, Massachusetts is rolling out a change that will quietly transform the way many high-end real estate closings are handled. It doesn’t change what tax is owed, and it doesn’t raise rates – but it absolutely changes when and how that tax is collected, especially for out-of-state and international owners.

In a market like Brookline – where million-dollar sales are the norm rather than the exception and a meaningful share of owners live elsewhere – this new rule will show up often. If you own, buy, or sell property here, it’s something you’ll want to understand before you’re sitting at the closing table.

The Rule in Plain English

Under the new regulation, when a Massachusetts property sells for $1,000,000 or more and the seller is not a Massachusetts resident, a portion of the sale proceeds must be withheld at closing and sent directly to the Massachusetts Department of Revenue (DOR). Think of it as an automatic prepayment of the state income tax on the seller’s capital gain.

This is important to stress: it is not a new tax. It is a timing change. The tax that a non-resident seller would normally pay months later when filing a Massachusetts tax return will now be collected right at closing.

The law offers two ways to calculate how much to withhold. By default, the state says to withhold 4% of the gross sale price. On a $1.5M sale, that means $60,000 is set aside for the DOR. Alternatively, a seller can elect to base the withholding on their actual profit – their net gain after accounting for purchase price and qualifying improvements. In that case, the rate is 5% of the gain. If the profit on that same $1.5M sale is only $200,000, the withheld amount would be $10,000 instead of $60,000. For very large gains, Massachusetts’ “millionaire’s surtax” can add an extra layer, so high-net-worth sellers should expect a more nuanced calculation and absolutely involve their tax advisor early.

Who Counts as a Non-Resident?

For this rule, residency is about where you live and pay taxes, not where you own property. A seller is considered non-resident if their primary home is outside Massachusetts. That includes former Brookline residents who have moved to another state, international owners who have never lived here, and investors whose tax home is elsewhere.

Conversely, Massachusetts residents are exempt from this withholding, even if they are selling an investment property rather than their main home. Residency is determined as of the time of closing. Someone who owned in Brookline for many years but relocated to Florida, California, or abroad before the sale will be treated as non-resident when they finally sell.

Brookline’s profile makes this rule particularly relevant. The town has a high proportion of foreign-born residents and international property owners, along with professionals who move in and out for academic, medical, and tech roles. Add to that a median single-family valuation that sits comfortably above a million dollars, and you get a perfect intersection: many sales above $1M, many owners who no longer live in Massachusetts. In other words, this is not a theoretical rule for our market; it will touch a lot of real transactions.

The Paperwork: Transferor’s Certification and Withholding Agent

The mechanics of the new rule center on two things: a form and a responsibility.

First, every seller in a covered transaction must complete a Transferor’s Certification. This document is where the seller declares whether they are a resident or non-resident, whether they qualify for any exemption, and whether they choose the simple “4% of price” method or the “5% of gain” method. The form also collects the data the closing attorney needs to calculate the withholding correctly.

Second, someone at closing becomes the withholding agent. In Brookline’s customary practice, this will almost always be the closing attorney or settlement agent handling the funds. That person is required to withhold the correct amount from the seller’s proceeds, file a special return with the DOR, and remit the funds – usually electronically within ten days of the closing date. If, in an unusual transaction, there is no closing attorney or escrow agent performing this function, the law pushes the obligation onto the buyer. That is not a position most buyers want to be in, which is one more reason to have a proper closing team in place.

Even when no tax is ultimately due – for example, if the seller qualifies for a valid exemption, the paperwork does not disappear. The withholding agent still has to submit the required forms to the DOR, documenting the transfer and the reason no money is being withheld.

When There Is No Withholding: Key Exemptions

Not every million-dollar sale by a non-resident results in money being held back. The regulation includes several important exemptions.

One of the most common will be the sale of a principal residence where the gain is excluded under federal law. If a seller meets the IRS rules for excluding up to 0,000 (single) or 0,000 (married) of gain on their primary home, that gain is not taxable by Massachusetts, and withholding on that exempt portion is not required. Sellers still need to certify that the property qualifies, but the actual tax withheld may be reduced dramatically, or eliminated, if the exclusion fully covers the gain.

Another major category is the 1031 like-kind exchange. If a non-resident seller is rolling their proceeds into another qualifying property and deferring the gain under Section 1031, Massachusetts generally does not require withholding on the deferred amount. The seller must disclose the exchange and consent to Massachusetts jurisdiction, but it can be a powerful planning tool for investors.

There are also narrower exemptions for certain corporate reorganizations, specific entity types, and non-taxable transfers such as some spousal or divorce-related conveyances. These situations are highly fact-specific, so they should be reviewed with counsel, not handled on autopilot.

Why This Matters So Much in Brookline

To understand the real impact, picture a few real-world scenarios.

Imagine an international family who purchased a Brookline condo near Washington Square for their child attending a Boston-area university. Years later, the child has moved on, the family has returned overseas, and the condo is now a rental. When they sell that unit for, say, $1.25M while living abroad, the closing will now automatically trigger Massachusetts withholding, unless they qualify for an exemption or calculate a much lower net gain.

Or take a long-time Brookline homeowner who moved to the West Coast but kept their three-family as an income property. The building has appreciated dramatically over the years. When they finally decide to sell for $2.3M, they are a non-resident at that moment. The closing attorney will be required to set aside a portion of the proceeds for the DOR, and the seller will feel that impact in their net check.

These are not edge cases. Brookline’s combination of high values, long-term appreciation, and mobile, international owners means that a meaningful share of our million-dollar-plus sales will now require this additional layer of tax logistics.

How Sellers Should Prepare

For non-resident sellers, the most important step is to start planning early, ideally before the property even hits the market. That means engaging a Massachusetts-savvy CPA or tax attorney to estimate your potential gain, consider whether the 4%-of-price or 5%-of-gain method makes more sense, and explore whether any exemption might apply.

You should expect that your net proceeds at closing will be reduced by the withheld amount. While you can ultimately receive a refund if too much was withheld, that requires filing a Massachusetts tax return and waiting for the state to process it. For many non-resident owners – especially those selling a second home, investment property, or long-held asset, this can affect cash-flow planning around other purchases, debt pay-offs, or investments.

Gathering documentation is essential. Closing attorneys and accountants will want a clear record of your purchase price, major capital improvements, and selling expenses. The more organized you are, the easier it is to justify a gain-based calculation that minimizes unnecessary withholding.

Finally, be honest and precise about residency status. Attempting to characterize yourself as a Massachusetts resident when you are not can backfire badly. The DOR has the ability to audit, and the certifications you sign are under penalties of perjury.

What Buyers Need to Know

From a buyer’s perspective, this rule does not increase your tax burden, but it does add a layer of risk if the withholding is not handled correctly. In a typical Brookline closing, your attorney will oversee the process and ensure that, if the seller is non-resident and the sale is above $1M, the proper amount is withheld and remitted.

Where buyers need to be careful is in situations where there is no sophisticated closing team. If you purchase a property without a settlement agent and no one handles the withholding, the state can look to you as the legally responsible party. That is not a risk any buyer should casually assume, especially on a high-value transaction.

The best protection is simple: retain an experienced Massachusetts real estate attorney, ask early in the process whether the seller is a resident or non-resident, and make sure the purchase and sale agreement obligates the seller to provide accurate certifications and cooperate with any required withholding.

The Agent’s Role in a Changing Landscape

For real estate professionals in Brookline, this rule becomes part of the standard advisory conversation, especially at the luxury and upper-midrange levels where million-dollar prices are commonplace.

On the listing side, it’s crucial to ask sellers about their residency early and explain, in plain terms, that non-resident status may lead to withholding at closing. Setting that expectation up front avoids shock and resentment when they see the closing disclosure. It also gives you the opportunity to connect them with tax and legal professionals well before the closing rush.

On the buyer side, it is equally important to flag when a seller is non-resident so the buyer’s attorney can plan for the withholding and not be scrambling days before closing. Educating clients on why there is a large line item on the settlement sheet labeled “MA DOR Withholding” is part of delivering a calm, confident experience.

Ultimately, agents who understand the rule and can explain it clearly position themselves as trusted advisors – not just door-openers, but true consultants guiding clients through a complex, high-stakes transaction.

What This All Adds Up To

Massachusetts’ new non-resident withholding requirement is a technical change with very real practical consequences for Brookline. It will not slow the town’s demand or alter the fundamental appeal of its neighborhoods, schools, or proximity to Boston. But it will become a standard part of how million-dollar-plus deals are structured and closed when the seller lives elsewhere.

For non-resident sellers, the message is straightforward: expect withholding, plan for it early, and make sure the amount is calculated correctly. For buyers, the key is to have the right professionals in place so the obligation is met without exposing you to unnecessary risk. For agents, this is one more area where market knowledge and proactive communication can make the difference between a smooth closing and a stressful one.

Brookline’s real estate market has always operated at the intersection of local charm and global capital. This new rule doesn’t change that – it simply ensures that, when those properties trade hands, Massachusetts gets its share of the gain at the moment the deal is done. With the right preparation and guidance, buyers and sellers can continue to move confidently, knowing that both their transaction and their tax obligations are being handled with the same care and precision they expect from every other part of a Brookline real estate deal.