1031 Exchange Rules in Maine

Last reviewed: June 2026. State rules change. Verify current forms before closing.

What Is Different in Maine

Maine is the state where timing does the most damage. Unlike most withholding states, where a 1031 exchange is exempt automatically with a closing-table affidavit, Maine withholds even on like-kind exchanges unless Maine Revenue Services grants an exemption certificate in advance. The request is Form REW-5, it now must be filed electronically through the Maine Tax Portal, and it is ineligible after closing. If your exchange involves Maine property, the REW-5 belongs on your checklist the day the purchase agreement is signed.

Does Maine Conform to IRC Section 1031?

Yes. Maine follows the federal like-kind exchange rules for real property. A 1031 exchange is an IRS-approved way to sell investment property and buy replacement property without paying tax on the gain right away. If your exchange qualifies for federal deferral, Maine defers its income tax too. New to exchanges? Start with our 1031 exchange guide.

Your replacement property can be in any state, and Maine has no claw-back or annual tracking of deferred gain afterward.

Maine Tax Rate on Real Estate Gains

Maine taxes capital gains as ordinary income at a top rate of 7.15% for 2026. On a $500,000 gain, that is roughly $35,750 of state tax on top of the federal bill. A qualifying exchange may defer all of it.

Nonresident Withholding at Closing

Under 36 M.R.S. 5250-A, the buyer must withhold 2.5% of the total consideration when a nonresident sells Maine real estate for $100,000 or more. The buyer remits the withholding within 30 days of closing using Form REW-1-1040 for individual sellers, REW-1-1041 for trusts and estates, or REW-1-1120 for corporations.

On a $700,000 sale, that is $17,500 held back unless Maine Revenue Services has approved an exemption first.

How 1031 Exchangers Claim the Exemption: Form REW-5

Here is the part that surprises out-of-state investors: the like-kind exchange itself does not exempt you. Withholding applies even in a 1031 exchange unless MRS issues an exemption or reduction certificate in response to a Form REW-5 request. The current mechanics, per MRS guidance updated in January 2026:

• Electronic filing is mandatory. The REW-5 must be submitted through the Maine Tax Portal. Paper requests are no longer accepted.
• Attach the exchange contract. MRS wants the Section 1031 exchange documentation with the request, so your qualified intermediary agreement needs to be in place first. A qualified intermediary is the independent party that holds your sale proceeds during an exchange.
• Allow at least 5 business days. File as soon as a purchase and sale agreement exists. Do not leave it for closing week.
• No retroactive relief. A REW-5 cannot be granted after closing. Miss the window and the withholding happens; you recover it on your Maine return.

There is also a reduction alternative: instead of 2.5% of the price, withholding can be set at 7.15% of the gain for individuals and trusts, or 8.93% for corporations, when that produces a smaller number. For a fully deferred exchange the gain is zero, which is exactly why the certificate eliminates withholding.

WealthBuilder 1031 prepares exchange documentation early enough to support a timely REW-5 filing.

Federal Taxes Still Apply

A Maine exchange defers two layers: federal and state. Here is what a taxable sale looks like without an exchange, using round numbers.

Example: $1,000,000 sale of a Maine rental. Original purchase $600,000, with $100,000 of depreciation taken, so the adjusted basis is $500,000 and the total gain is $500,000.

Figures are illustrative and rounded. Your rates depend on income, filing status, and basis. Run your own numbers with our 1031 exchange calculators, then confirm them with your tax advisor.

Risks and Things That Go Wrong in Maine Exchanges

• Filing the REW-5 too late. The single biggest Maine mistake. Five business days is the minimum, the portal filing is mandatory, and nothing can be done after closing.
• Missing exchange documents. MRS expects the exchange contract attached to the REW-5. An exchange set up at the last minute may not have paperwork ready in time.
• Boot surprises. Cash taken at closing or mortgage relief not offset with new debt or additional cash creates recognized gain, which changes what the certificate should cover.
• Stale information. Older charts cite a $50,000 threshold and two-week processing. The current threshold is $100,000 and the current process runs through the Maine Tax Portal.
• Failed deadlines. The federal 45-day identification and 180-day completion rules apply with no state extensions. See the IRS rules for 1031 exchanges.
• Deferral is not elimination. The IRS and Maine will tax the deferred gain when you eventually cash out. Plan the exit, not just the exchange.

Maine 1031 Exchange FAQs

Is a 1031 exchange automatically exempt from Maine withholding?
No. This is Maine's defining quirk: withholding applies even to like-kind exchanges unless Maine Revenue Services approves a REW-5 exemption request before closing.

How do I file the REW-5?
Electronically, through the Maine Tax Portal. Attach your Section 1031 exchange contract and allow at least 5 business days before closing.

What happens if I forget the REW-5?
The buyer withholds 2.5% of the price and remits it to MRS. You recover it by filing a Maine income tax return, which can take months.

Who remits the withholding when it applies?
The buyer, within 30 days of closing, using REW-1-1040, REW-1-1041, or REW-1-1120 depending on the seller type.

Does Maine track my deferred gain after the exchange?
No. Maine has no claw-back rule and no annual reporting tied to deferred exchange gain.

Sources

• 36 M.R.S. 5250-A
• Maine Revenue Services, Real Estate Withholding FAQ (rev. through Jan. 21, 2026)
• Maine Revenue Services REW forms (REW-5, REW-1 series)
• Tax Foundation, State Individual Income Tax Rates and Brackets, 2026

Want to learn more?

Our 1031 exchange guide covers the full process from sale to replacement. Ready to start a Maine exchange? WealthBuilder 1031 is attorney-owned, serves all 50 states, and charges a flat $1,000 fee. Start at WealthBuilder1031.com or call 888-508-1901.

This page does not constitute legal or tax advice. Consult your attorney and tax advisor about your specific situation.

Ready to start your Maine 1031 exchange? WealthBuilder 1031 acts as your qualified intermediary for a flat $1,000 fee, $750 at your sale and $250 at your purchase. See our Maine 1031 exchange services to get started.