Maryland used to treat capital gains like any other income. Legislation enacted in 2025 changed that for higher earners: an additional 2% tax on net capital gains, switched on by federal adjusted gross income over $350,000. This guide explains who pays, which assets are excepted, how nonresidents and pass-through owners are treated and what the arithmetic looks like.
It is based on the Comptroller of Maryland's Technical Bulletin 58 and its tax alert on the 2025 legislative changes, plus IRS Topic 409, all read on 3 November 2026. Where those sources are silent, such as how county income tax interacts with the 2%, we say so.
Per Technical Bulletin 58, until 2025 Maryland taxed individuals' capital gains in the same manner and at the same rate as ordinary income. In 2025 the General Assembly added an additional 2% tax on net capital gains included in Maryland adjusted gross income. The bulletin says it applies to individuals with federal adjusted gross income (FAGI) in excess of $350,000, regardless of filing status. The Comptroller's tax alert says it applies for tax years beginning after December 31, 2024, subject to certain exceptions.
Maryland adjusted gross income is FAGI adjusted by Maryland additions and subtractions. If a person or a joint-filing couple is over $350,000 and has net capital gain, the bulletin says the State income tax is the sum of two parts: the applicable income tax rate applied to Maryland taxable income, plus the additional 2% on the net capital gain included in Maryland adjusted gross income. The tax is not imposed on corporations.
The two thresholds are different things: FAGI over $350,000 switches the surtax on, and the 2% is then charged on the net capital gain (less the excepted assets below), not on all income. We did not find an end date for the surtax in the Comptroller pages we read, so we do not state one.
The bulletin lists capital gains from the sale or exchange of these assets as not subject to the additional 2% tax. The gain is still part of ordinary Maryland income.
| Excepted asset | Conditions as the bulletin states them |
|---|---|
| Primary residence | Must be the taxpayer's primary residence; a single-family home, townhome, row home, residential condominium unit or residential cooperative unit (land and an accessory dwelling unit included); and it sold for less than $1,500,000 |
| Retirement accounts | Assets held in 401(k), 403(b), 457(b), IRA, Roth IRA, and defined contribution, defined benefit or similar retirement savings plans |
| Cattle, horses, breeding livestock | Held more than 12 months, and more than 50% of the taxpayer's gross income for the year (including the sale) is from farming or ranching |
| Conservation land | Land subject to, or that will be subject on the sale to, a conservation, agricultural or forest preservation easement |
| Section 179 property | Property used in a trade or business if the cost is deductible under IRC section 179 |
| Affordable housing | Affordable housing owned by a nonprofit organization |
The bulletin's $1,500,000 test is about the sale price ("sold for less than $1,500,000"), not the size of the gain. A home that sells for more than that does not qualify for this exception under the bulletin's wording.
The surtax is simple arithmetic once you know the net capital gain that is not excepted. These figures are our own calculation of 2% of a gain, for a taxpayer whose FAGI is over $350,000. They are the surtax only, on top of Maryland tax at the ordinary rate.
| Non-excepted net capital gain | Extra 2% tax |
|---|---|
| $50,000 | $1,000 |
| $100,000 | $2,000 |
| $500,000 | $10,000 |
| $1,000,000 | $20,000 |
For a mixed case we reuse the facts in the bulletin's own example of a Maryland resident with FAGI over $350,000: $10,000 gain from horses sold by her business, $50,000 gain from a pass-through entity (of which $32,000 is from cattle), a $400,000 gain on a principal residence sold for $1.2 million, and a $150,000 gain on a beach house. The bulletin shows the steps on Form 502CG but, in the text we read, does not print the final totals, so the totals are ours. The bulletin identifies $32,000 (cattle) and $400,000 (residence) as excepted and does not say whether the $10,000 horse gain qualifies, which depends on the farming-income test. Net capital gain is $610,000. If the horse gain qualifies, excepted gains are $10,000 + $32,000 + $400,000 = $442,000, the gain subject to the surtax is $168,000, and 2% of that is $3,360. If it does not, the subject gain is $178,000 and the surtax is $3,560. The $150,000 beach house gain is the largest taxable piece either way.
For individuals the bulletin says: an individual with FAGI over $350,000 who received net capital gain must report it on Maryland Form 502CG, report total net capital gain (including gain from a fiduciary or pass-through entity), report gain from excepted assets and subtract it to reach the net capital gain subject to the additional tax. That amount also goes on the appropriate line of Form 502 or 505. People who expect capital gain income must calculate and pay estimated tax on Form 502D, and the bulletin points to the Payment Voucher Worksheet to size the payment.
Estates and trusts with federal taxable income over $350,000 are taxed on undistributed capital gain income and complete Form 504CG, with the additional tax computed on Form 504. A pass-through entity (PTE) does not pay the 2% at the entity level: the bulletin says the PTE tax rate is a statutory rate that does not include it, and the PTE reports each member's capital gain on Schedule K-1 so the member can report and pay the surtax. A member who expects PTE capital gain should make estimated payments to avoid being underpaid.
Under the bulletin, proceeds from a nonresident's sale of Maryland real property are subject to mandatory withholding unless an exemption applies. The withholding rate is set by statute and does not include the 2% surtax, so a nonresident who expects the gain to be subject to it should make an additional estimated payment. The Comptroller's tax alert gives the withholding rate for nonresident individuals and fiduciaries as 8.75 percent.
A nonresident can ask for a tentative refund of the withholding no earlier than 60 days after the deed is filed and no later than December 1 of the year of the sale, with documentation that the proceeds will not be taxed or will be taxed less than was withheld. A nonresident who sells property for more than $1.5 million is not eligible for a tentative refund and must file a year-end return. The bulletin does not discuss how the surtax applies to a nonresident's gains on assets other than real property, and we do not state a rule for that.
The surtax is added to the ordinary rate. The Comptroller's alert lists the top State brackets on Maryland taxable income for tax years beginning after December 31, 2024: 5.75% from $250,001 to $500,000 (single) or $300,001 to $600,000 (joint); 6.25% from $500,001 to $1,000,000 (single) or $600,001 to $1,200,000 (joint); and 6.50% above $1,000,000 (single) or $1,200,000 (joint). We did not read the lower brackets and do not list them here.
On local tax, the alert says counties and Baltimore City may impose a maximum local income tax rate of 3.30 percent in a tax year beginning after December 31, 2025. Neither source we read says whether county income tax is also charged on the extra 2%: the bulletin describes the 2% as part of the State income tax computation. Ask the Comptroller or a preparer before you rely on either reading. Our county guide covers local rates.
For like-kind exchanges, the bulletin says Maryland adjusted gross income starts with FAGI, so if the gain from a transaction is not included in FAGI it is not included in Maryland adjusted gross income.
Maryland starts from the federal return, so the federal rules still decide what counts as a gain. IRS Topic 409 says that if you have a net capital gain, a lower tax rate may apply than the rate on ordinary income, and that net short-term capital gains are taxed as ordinary income at graduated rates. The bulletin states that an asset held more than one year gives a long-term gain; Maryland does not give long-term gains a lower State rate in the sources we read, only the extra 2% above the FAGI threshold.
We read these pages on 3 November 2026. We did not read the Tax-General Article text itself, Forms 502CG and 502D instructions, or the Comptroller web pages that load only through scripts, so we state the rules as the bulletin and alert state them. House Bill 133 of the 2026 session proposed raising the rate on certain gains from 2% to 3%; we found no record that it passed, so it is not reflected here.
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