Maine Capital Gains Tax, Explained

Maine runs three ordinary-income brackets, and a capital gain simply stacks on top of your other income to determine which bracket the gain itself falls into. For 2026, single filers pay 5.8% up to $27,400 of taxable income, 6.75% on the next slice up to $64,850, and 7.15% above that. Married couples filing jointly see the same three rates at roughly double the thresholds: 5.8% up to $54,850, 6.75% up to $129,750, and 7.15% above that.

Because gains stack on top of ordinary income, a large one-time sale, an inherited camp on the water, a business you built over twenty years, almost always pushes the gain itself into the 7.15% bracket even if your regular income sits lower down the schedule.

Maine's rate is only half the picture. Hold the asset over a year and the federal government taxes the gain at 0%, 15%, or 20% depending on your income, all separate from Maine's flat ordinary treatment. Sell within a year and the federal rate jumps to your ordinary bracket, up to 37%. Higher earners also carry the federal 3.8% Net Investment Income Tax on top of either rate. See the full breakdown in our federal capital gains brackets guide.

Combine the two systems and a long-term seller in Maine's top bracket, in the federal 15% bracket, with NIIT applying, is looking at roughly 26 percent combined on the gain: 7.15% Maine + 15% federal + 3.8% NIIT. A short-term seller in a high federal bracket can clear 45% combined. The holding period does nothing for Maine, but it's still the single highest-leverage lever on the federal side.

Maine's coast, islands, and lake country draw a steady stream of out-of-state buyers, retirees from Massachusetts and New York, physicians who want a summer place, families who inherited a camp and live three states away. That creates a large population of nonresident owners, and Maine has a specific rule aimed squarely at them when they sell.

If you don't live in Maine and you sell Maine real estate for $100,000 or more, the buyer is legally required to withhold 2.5% of the total sale price, not the gain, the full price, and send it to Maine Revenue Services within 30 days using Form REW-1. This is a cash-flow event most out-of-state sellers don't see coming until it shows up as a line item at closing.

Maine built a release valve. File Form REW-5 at least five business days before closing, and if 7.15% of your actual realized gain is less than 2.5% of the sale price, Maine will approve the lower withholding amount instead. Worked example: you sell a coastal property for $400,000 that you've owned since the 1990s, with only a $60,000 taxable gain after basis and improvements. Default withholding would be $10,000 (2.5% of price). Your estimated actual liability is roughly $4,290 (7.15% of gain). Filing Form REW-5 on time can close that $5,700 gap before the money ever leaves the closing table, instead of waiting a year to claim it back on a Maine nonresident return.

Full guide on the downstream number: rental property depreciation calculator for owners who rented the property before selling, since recapture adds to the taxable gain that both the withholding comparison and your Maine return are built on.

Because Maine's tax base is built directly from your federal adjusted gross income, a properly structured 1031 like-kind exchange defers the Maine gain the same way it defers the federal one. There's no separate Maine election, no separate state form to track the deferred basis, the deferral simply carries through automatically. That makes 1031 exchanges on Maine investment real estate, coastal rentals, timberland, commercial buildings, a straightforward way to defer both layers of tax at once.

One thing that doesn't disappear automatically: Maine's nonresident real estate withholding still applies to the closing itself, even inside a qualifying exchange. If you're a nonresident doing a 1031 exchange on Maine property, file Form REW-5 with a copy of the exchange agreement before closing to claim the withholding exemption, otherwise the 2.5% gets withheld on a sale where you owe no current tax at all. See our full 1031 exchange rules guide for the mechanics and timelines.

Two different situations get confused constantly, worth separating clearly. First: you move to Maine and become a resident, then later sell an out-of-state asset. Once you're a Maine resident, gains from stocks, businesses, and most intangible property are generally taxed by Maine regardless of where the asset is located, residency drives the tax, not the location of the sale.

Second: you're a lifelong out-of-state family with a Maine camp or cottage passed down for generations, and you finally sell it without ever becoming a Maine resident. That's the nonresident real estate withholding scenario from the section above, the 2.5%-of-price rule applies at closing regardless of how long the family has owned the property or how it was acquired.

A third group sits in between: people who owned Maine real estate as residents, then moved away, and are selling years later as nonresidents. Maine-source real estate stays taxable to Maine no matter where the seller lives at the time of sale, the withholding and gain-recognition rules above apply the same way they would to someone who never lived in the state.

Wherever you land in that picture, a six-figure gain with tax withheld at closing usually still means a Maine nonresident (or resident) return has to be filed the following spring to true up the actual liability against what was withheld, and often a federal estimated tax payment is needed in the same quarter as the sale if withholding alone doesn't cover the federal side.