Does Maryland Tax Capital Gains? Rates, Surcharge, Exclusions

Maryland’s capital gains tax works by running your investment profits through the same graduated income tax brackets as your wages, with no preferential long-term rate, and then adding a 2% surcharge on net capital gains if your federal adjusted gross income tops $350,000.¹ Layer in the county piggyback tax that every Maryland jurisdiction charges, and a high earner’s combined rate on gains can reach nearly 12%.

Gains Are Taxed As Ordinary Income

Maryland uses your federal adjusted gross income as the starting point for the state return, so every dollar of capital gain you report federally flows straight into Maryland’s brackets.² There is no separate, lower rate for long-term gains the way the federal system provides. A short-term gain on a stock you flipped and a long-term gain on property you held for a decade are both taxed at the same rates as your salary.

The 2025 State Brackets

The 2025 legislative session added two new top brackets, taking the highest marginal state rate to 6.5% for tax years beginning after December 31, 2024.³

Single, Married Filing Separately, or Dependent Filers

$1 to $1,000: 2%
$1,001 to $2,000: 3%
$2,001 to $3,000: 4%
$3,001 to $100,000: 4.75%
$100,001 to $125,000: 5%
$125,001 to $150,000: 5.25%
$150,001 to $250,000: 5.5%
$250,001 to $500,000: 5.75%
$500,001 to $1,000,000: 6.25%
Over $1,000,000: 6.5%

Joint Filers, Head of Household, or Qualifying Surviving Spouse

$1 to $1,000: 2%
$1,001 to $2,000: 3%
$2,001 to $3,000: 4%
$3,001 to $150,000: 4.75%
$150,001 to $175,000: 5%
$175,001 to $225,000: 5.25%
$225,001 to $300,000: 5.5%
$300,001 to $600,000: 5.75%
$600,001 to $1,200,000: 6.25%
Over $1,200,000: 6.5%

These rates apply to wages, interest, business income, and capital gains alike.⁴

The 2% Surcharge on High-Income Capital Gains

If your federal adjusted gross income exceeds $350,000, Maryland now charges an additional 2% on your net capital gains, regardless of filing status.² The threshold is a cliff, not a phase-in: once your AGI clears $350,000, the 2% applies to the full amount of net capital gain in your Maryland AGI, not just the portion above the threshold. The surcharge is codified at Tax-General § 10-105(a)(3).⁴

The statute exempts two categories of gain. Gains from the sale of a primary residence are excluded when the sale price is under $1,500,000, and this covers single-family homes, townhouses, row homes, condominiums, and cooperative units. Gains on assets held in certain retirement accounts are also outside the surcharge.⁴

For a single filer with over $1,000,000 in taxable income, the effective state-level rate on a capital gain can now reach 8.5%: the 6.5% top bracket plus the 2% surcharge. Before this law, the maximum state rate on gains was 5.75%.

County Piggyback Tax Applies Too

Every Maryland county and Baltimore City levies its own income tax, collected by the state and forwarded to the jurisdiction where you live. Capital gains sit in your taxable income like everything else, so they are subject to this local tax at the same rate as your wages.³

For 2026, local rates run from 2.25% in Worcester County to 3.30% in Dorchester County and Kent County. Most jurisdictions, including Baltimore City, Baltimore County, Montgomery County, Prince George’s County, and Howard County, set the rate at 3.20%. Anne Arundel and Frederick use graduated local brackets rather than a single flat rate.³

At the top of the stack, a taxpayer above the $350,000 AGI threshold with more than $1,000,000 in taxable income living in Dorchester or Kent County could face a combined rate around 11.80% on capital gains: 6.5% state, plus 2% surcharge, plus 3.30% local. In a 3.20% local jurisdiction the combined rate lands near 11.70%.

Deferrals and Exclusions That Cut the Bill

Home Sale Exclusion

Maryland follows the federal rule for the sale of a home. If you owned and lived in the property as your primary residence for at least two of the five years before the sale, up to $250,000 of gain is excluded on a single return and up to $500,000 on a joint return.⁵ Because Maryland starts from federal AGI, that federal exclusion carries through to your state return automatically. The separate 2% surcharge exemption for primary residences under $1,500,000 sits on top of this.

1031 Like-Kind Exchanges

A properly executed Section 1031 exchange on investment real estate defers both federal and Maryland tax on the gain, since anything deferred federally never reaches Maryland AGI in the first place.² Maryland transfer and recordation taxes still apply to both the property you sell and the one you buy.

Opportunity Zone Investments

Maryland recognizes the federal Qualified Opportunity Zone program. Reinvesting a gain in a Qualified Opportunity Fund defers it until the earlier of the date you sell the Opportunity Zone investment or December 31, 2026.⁶ Hold the investment ten years and any appreciation on the Opportunity Zone stake itself, separate from the original deferred gain, may be permanently excluded.

Qualified Maryland Technology Companies

Maryland allows a subtraction for gains from investments in certain state-certified technology or biotechnology companies. The company generally must be headquartered in Maryland, have fewer than 50 full-time employees, have no publicly traded stock, and have been in active business no longer than 12 years. Minimum holding periods apply, and recapture rules kick in if you sell early or the company leaves the state. You have to document that the company meets the Comptroller’s certification requirements when you claim it.

Nonresidents Selling Maryland Property

If you live outside Maryland but sell real estate located in the state, tax is collected at closing rather than at filing. Under Tax-General § 10-912, the clerk of the circuit court cannot record the deed until a withholding payment is made.⁷

For a nonresident individual, the withholding rate combines Maryland’s top marginal individual rate (currently 6.5%) with the special nonresident tax rate under § 10-106.1, and it’s applied to the total payment received from the sale, not just the gain. Nonresident entities are withheld at the corporate income tax rate. Because the base is the gross sale price, withholding often exceeds the actual tax owed.

You can file Form MW506AE before closing to request a certificate for reduced or eliminated withholding when the sale will produce a loss or the gain is small relative to the price.⁸ After closing, Form MW506R lets individuals, fiduciaries, and C corporations apply for a tentative refund of excess withholding instead of waiting for the annual return; pass-through entities can’t use it.⁹ You still have to file a Maryland nonresident return (Form 505) for the year.

Estimated Payments on a Large Gain

Investment gains usually don’t have any withholding attached. If your Maryland tax on income that isn’t covered by withholding will exceed $500 for the year, you’re required to make quarterly estimated payments using Form PV.¹⁰ The deadlines are:

First quarter: April 15
Second quarter: June 15
Third quarter: September 15
Fourth quarter: January 15 of the following year

Miss them on a big mid-year event like a home sale or a stock liquidation, and you’ll owe underpayment penalties and interest on top of the tax itself.

Credit for Taxes Paid to Another State

Maryland residents who paid income tax to another state on the same capital gain, typically from selling real estate located elsewhere, can claim a credit against their Maryland liability. The credit is claimed on Form 502CR (Part A) with your Form 502, and you’ll need documentation, generally an official transcript, showing the tax paid to the other jurisdiction.¹¹ If the gain came through a pass-through entity that filed a composite return in the other state, you’ll need a statement showing your share of that liability rather than just withholding. The credit is capped at the Maryland tax that would have been owed on the same income. Nonresidents cannot claim it.

1
Comptroller of Maryland. Tax Alert – Changes to State and Local Income Tax Rates From the 2025 Legislative Session
2
Comptroller of Maryland. Technical Bulletin 58 Capital Gains
3
Comptroller of Maryland. 2026 Maryland State and Local Income Tax Withholding Information
4
Maryland General Assembly. Maryland Code Tax-General 10-105 – Statute Text
5
Internal Revenue Service. Topic No. 701, Sale of Your Home
6
Maryland Department of Housing and Community Development. Maryland Opportunity Zones
7
Maryland General Assembly. Maryland Code Tax-General 10-912 – Statute Text
8
Cornell Law School. Maryland Code of Regulations 03.04.12.03 – Withholding Requirements
9
Comptroller of Maryland. Form MW506R Application for Tentative Refund of Withholding on Sales of Real Property by Nonresidents
10
Comptroller of Maryland. Personal Tax Tip 54 – Should You Pay Estimated Tax to Maryland
11
Comptroller of Maryland. Administrative Release No. 42 – Claiming Credit for State and Local Taxes Paid to Other States