1031 Exchange in Maine
Maine conforms to the federal like-kind exchange rules, so a properly structured 1031 exchange defers Maine income tax on the same timeline as federal tax — Maine Revenue Services confirms that gain deferred federally under a qualifying like-kind exchange is also deferred for Maine purposes. Maine has no separate 1031 clawback add-back. The main state-specific wrinkle is real estate withholding: when a nonresident sells Maine property for $100,000 or more, the buyer must withhold 2.5% of the sale price (Form REW-1), though a like-kind exchange with no recognized gain can qualify for a withholding exemption via Form REW-5.
Fast Facts
- State Income Tax on Capital Gains
- Maine taxes capital gains as ordinary income at its graduated personal income tax rates. For 2026 the brackets are 5.8%, 6.75%, and 7.15%, with a new top rate of 9.15% on income over $1,000,000 (single). There is no separate, lower capital-gains rate.
- Conforms to Federal 1031
- Yes. Maine Revenue Services states that gain or loss deferred federally through a qualifying like-kind exchange is also deferred for Maine income tax purposes.
- Clawback Rule
- No. Maine does not impose a separate statutory add-back or clawback of deferred gain when the replacement property is located outside Maine; the federal deferral is simply followed.
- Nonresident Withholding (REW)
- 2.5% of the sale price is withheld when a nonresident sells Maine real property for $100,000 or more, reported on Form REW-1. A like-kind exchange with no recognized gain can qualify for an exemption or reduction via Form REW-5, filed before closing.
- Real Estate Transfer Tax
- Maine imposes a real estate transfer tax of $2.20 per $500 of value, split half on the grantor (seller) and half on the grantee (buyer). For transfers on or after November 1, 2025, an additional $3.80 per $500 applies to value over $1,000,000.
How Maine Treats a 1031 Exchange
Maine is a conforming state for like-kind exchanges. In its Real Estate Withholding guidance, Maine Revenue Services (MRS) states plainly that if a capital gain or loss is deferred for federal income tax purposes because of a qualifying like-kind exchange, the gain or loss is also deferred for Maine income tax purposes. That means a valid federal Section 1031 exchange — 45-day identification, 180-day close, real property held for investment or business use, proceeds routed through a Qualified Intermediary — defers Maine income tax on the same schedule as federal tax.
Unlike a handful of states (Oregon and California, for example) that track deferred in-state gain and recapture it later when the replacement property is sold out of state, Maine does not impose a separate clawback or add-back. There is no Maine “OR-24”-style annual reporting form to track deferred gain on out-of-state replacement property. The deferral follows the federal treatment, and Maine’s claim to tax is realized when — and if — the gain is eventually recognized on a taxable Maine return.
Because Maine taxes recognized gain as ordinary income, the value of deferral can be meaningful. For 2026 the graduated rates run 5.8%, 6.75%, and 7.15%, and Maine added a new top rate of 9.15% on income above $1,000,000 for single filers (above $1,500,000 for joint filers and heads of household, and above $750,000 for married filing separately), per the MRS 2026 individual income tax rate schedule. There is no preferential capital-gains rate — any gain recognized as boot or in a failed exchange is taxed at the applicable ordinary rate.
Maine Real Estate Withholding (REW)
The most important Maine-specific mechanic in an exchange is real estate withholding. Under 36 M.R.S. § 5250-A, when a nonresident individual, estate, or business sells Maine real property and the consideration is $100,000 or more, the buyer (or the real estate escrow person) must withhold 2.5% of the total sale price and remit it to Maine Revenue Services with Form REW-1 within 30 days of closing. This is an estimated tax payment, not an extra tax — it is credited against the seller’s Maine income tax liability.
For a 1031 exchange, this matters even though the gain is deferred. Because a like-kind exchange with no recognized gain produces no Maine tax, MRS allows a seller to request an exemption or reduction of the 2.5% withholding by filing Form REW-5 before closing, submitting the exchange contract as support. MRS also allows a reduced withholding when 7.15% of the realized gain (8.93% for a nonresident corporation) is less than 2.5% of the sale price. Nonresident investors doing a Maine exchange should plan the REW-5 request early — MRS asks that it be submitted several business days before closing — so that funds are not unnecessarily tied up in withholding while the exchange completes.
Legal and Tax Considerations
State Income Tax on Capital Gains
Taxed as ordinary income at Maine's 2026 graduated rates (5.8%, 6.75%, 7.15%, and a top rate of 9.15% over $1,000,000 for single filers). No separate capital-gains rate.
Conforms to Federal 1031
Yes. MRS confirms federally deferred like-kind exchange gain is also deferred for Maine income tax purposes.
Clawback
None. Maine imposes no separate add-back of deferred gain on out-of-state replacement property.
Nonresident Withholding (REW)
2.5% of sale price when a nonresident sells Maine property for $100,000+ (Form REW-1). Exemption/reduction for a no-gain like-kind exchange via Form REW-5.
Required Documentation
- Federal Form 8824 (Like-Kind Exchanges)
- Maine Form REW-1 (Real Estate Withholding) — filed by the buyer within 30 days of closing when a nonresident sells for $100,000 or more
- Maine Form REW-5 (Request for Exemption or Reduction) — filed before closing to claim the like-kind exchange withholding exemption
- Qualified Intermediary exchange agreement and assignment documents
- Complete closing/settlement statements for both the relinquished and replacement properties
Clawback Rule
None
Official References
- Maine Revenue Services — Real Estate Withholding (REW)
- Maine Revenue Services — Real Estate Withholding FAQ (like-kind exchange deferral)
- Maine Revenue Services — 2026 Individual Income Tax Rate Schedules (PDF)
- Maine Revenue Services — Individual Income Tax (1040ME)
- Maine Revenue Services — Real Estate Transfer Tax
- IRS Form 8824 — Like-Kind Exchanges
Maine Transfer Tax Context
Separate from income tax, Maine imposes a real estate transfer tax (RETT) on the recording of most deeds. The rate is $2.20 for each $500 (or fractional part of $500) of the value of the property being transferred, and by statute the tax is imposed half on the grantor (seller) and half on the grantee (buyer). For transfers occurring on or after November 1, 2025, Maine added an additional $3.80 per $500 on the portion of value that exceeds $1,000,000.
The transfer tax is a transactional cost tied to recording the deed and is distinct from the income-tax deferral a 1031 exchange provides — completing a like-kind exchange does not eliminate the RETT on the underlying conveyances. Investors should factor the transfer tax (and, for higher-value properties, the additional over-$1,000,000 tier) into their closing costs on both the relinquished and replacement legs of a Maine exchange. Certain statutory exemptions from the transfer tax exist; check the current Maine Revenue Services guidance for whether a specific transfer qualifies.
Step-by-Step Process
- 1
Engage a Qualified Intermediary Before Closing
For a delayed exchange, you must set up a Qualified Intermediary (QI) before you close on the relinquished Maine property. You cannot take actual or constructive receipt of the sale proceeds — the QI holds the funds. If you are a nonresident, also begin the Form REW-5 exemption request early so the 2.5% real estate withholding is not applied to a no-gain exchange.
- 2
Sell the Relinquished Property
Close the sale of your relinquished property with the QI receiving the proceeds. Report the disposition on federal Form 8824. If a nonresident is selling Maine property for $100,000 or more, the buyer files Form REW-1 within 30 days of closing unless an exemption or reduction has been approved.
- 3
Identify Replacement Property Within 45 Days
You have 45 calendar days from the sale of the relinquished property to formally identify potential replacement property in writing, following the federal identification rules (such as the three-property rule or 200% rule).
- 4
Close on Replacement Property Within 180 Days
You must acquire the replacement property within 180 calendar days of the sale (or your tax-return due date including extensions, if earlier). Only real property held for investment or business use qualifies under post-2017 federal law.
- 5
File Federal and Maine Reporting
Report the exchange on federal Form 8824. Because Maine conforms and imposes no clawback, there is no special annual Maine tracking form for out-of-state replacement property. Keep your QI agreement, both closing statements, and any REW-1/REW-5 documentation with your records, and reconcile any withholding as a credit on your Maine return.
Timeline Calculator
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Frequently Asked Questions
Yes. Maine Revenue Services confirms that a capital gain or loss deferred for federal income tax purposes through a qualifying like-kind exchange is also deferred for Maine income tax purposes. A properly structured 1031 exchange defers Maine income tax on the same timeline as federal tax, and Maine does not impose a separate clawback or add-back on out-of-state replacement property.
When a nonresident sells Maine real property for $100,000 or more, the buyer must withhold 2.5% of the sale price and remit it with Form REW-1 within 30 days of closing. Because a like-kind exchange with no recognized gain produces no Maine tax, a nonresident seller can request an exemption or reduction of that withholding by filing Form REW-5 before closing and submitting the exchange contract as support.
Maine taxes capital gains as ordinary income at its graduated rates. For 2026 the brackets are 5.8%, 6.75%, and 7.15%, with a new top rate of 9.15% on income over $1,000,000 for single filers (over $1,500,000 for joint filers and heads of household). There is no separate, lower capital-gains rate, so gain recognized as boot in a partial exchange or from a failed exchange is taxed at the applicable ordinary rate. Check the Maine Revenue Services rate schedule for the current brackets.
No. Unlike some states, Maine does not impose a separate statutory add-back or clawback of deferred gain when your replacement property is located outside Maine. The federal deferral is simply followed, and Maine has no special annual tracking form for out-of-state replacement property.
Yes. Maine imposes a real estate transfer tax of $2.20 per $500 of the property's value, split half on the seller and half on the buyer. For transfers on or after November 1, 2025, an additional $3.80 per $500 applies to value over $1,000,000. This transfer tax is separate from income-tax deferral, so completing a 1031 exchange does not remove the transfer tax on the underlying deeds. Certain statutory exemptions exist — check current Maine Revenue Services guidance.
Related Guides
- What Is a 1031 Exchange? — the complete federal framework, deadlines, and rules
- 1031 Exchange by State — compare Maine with other states’ rules and clawback provisions
References
Official References
- Maine Revenue Services — Real Estate Withholding (REW)
- Maine Revenue Services — Real Estate Withholding FAQ
- Maine Revenue Services — 2026 Individual Income Tax Rate Schedules (PDF)
- Maine Revenue Services — Individual Income Tax (1040ME)
- Maine Revenue Services — Real Estate Transfer Tax
- IRS Form 8824 — Like-Kind Exchanges
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.