Selling ยท Massachusetts tax
Massachusetts adds 4% to taxable income above $1,107,750. A capital gain counts toward that line, so one property sale can put someone who has never earned near a million dollars over it for a single year.
The surtax arrived with the Fair Share Amendment and took effect for the 2023 tax year. It is not a tax on wealthy people in the way most sellers assume. It is a tax on taxable income in one year, and a capital gain is taxable income.
A landlord earning $95,000 a year has never been near the threshold. Sell a three-decker held since the nineties and the gain alone can clear it.
| Item | Rate | Notes |
|---|---|---|
| Massachusetts long-term capital gain | 5% | held over one year |
| Massachusetts short-term gain | 8.5% | held one year or less |
| Surtax threshold | $1,107,750 | 2026, indexed to inflation |
| Surtax rate above it | 4% | on the excess only |
| Effective rate above the line | 9% | long-term gain |
A three-decker bought in Quincy in 2004 for $245,000, improved by $60,000, sold for $850,000. The owner earns $95,000 from a job and files jointly.
That one lands under the threshold, and no surtax is due. Push the sale price to $1.3M, or add a second property in the same year, and it clears. The surtax is a function of the whole year, not the deal.
An instalment sale under IRC 453 spreads the gain across the years payments are received. Two years of gain under the threshold beats one year over it. It also means carrying paper on the buyer, which is its own decision.
Defers the entire federal and state gain into a replacement property. Strict clock: 45 days from closing to identify, 180 days to close. It has to be arranged before the sale, a qualified intermediary must hold the proceeds. Once the money hits your account it is too late.
If a large bonus, a Roth conversion or a business sale is already landing this year, moving the property sale to January can be the whole difference.
Only the part over $1,107,750. It is a marginal 4% on the excess, not a recalculation of your whole income at a higher rate.
It applies to taxable income on the return. Married couples filing jointly share one threshold rather than getting two, which is a common and expensive assumption to get wrong.
Yes, because there is no recognised gain to tax in that year. The deferral applies at the state level as well as federally. The gain comes back when you eventually sell without exchanging.
Yes, it is indexed to inflation. It was $1,000,000 when the amendment took effect for 2023 and is $1,107,750 for 2026. Always check the current year.
Not tax or legal advice. This is published research, not a professional opinion on your situation. Take it to a CPA or an attorney before you act on it.