Updated October 8, 2026. Quick answer: Generally no, if you qualify for the federal exclusion. The Form 1040ME instructions say to “Enter the federal adjusted gross income shown on your federal” return, which leaves out a gain excluded under section 121. Gain above it is taxed at graduated rates reaching 7.15% for 2026, and Maine’s transfer tax is split between buyer and seller.
Maine tax on home sale profit at a glance
| Item | What the documents say |
|---|---|
| Profit on your main home | Starts from federal adjusted gross income and conforms to the Internal Revenue Code; the pages read do not mention section 121 |
| Rate on gain above the exclusion | Graduated for 2026: 5.8%, 6.75% and 7.15%; new 2% surcharge on Maine taxable income over $1,000,000 single |
| Collected at the sale | Transfer tax of $2.20 for each $500 of value, half on the seller; nonresident sellers: buyer withholds 2.5% of the consideration |
| Source | Maine Revenue Services; Maine Legislature |
What the Maine documents say
The 2025 Form 1040ME instructions begin with “Enter the federal adjusted gross income shown on your federal” return and say “Maine conforms to the Internal Revenue Code (the “Code”) as of” a stated date. Under the federal statute, “Gross income shall not include gain from the sale or exchange” of a principal residence that meets the ownership and use tests, so an excluded gain never enters federal adjusted gross income. That is reasoning from two documents. The Maine pages read never name section 121.
For 2026 the rate schedule is “Less than $27,400 5.8% of Maine taxable income” for single filers, then “6.75% of excess over $27,400”, and at the top “$64,850 or more (1) $4,117 plus 7.15% of excess over $64,850”. The schedule also says the tax is “increased by a surcharge of 2% on the portion” of taxable income above $1,000,000 for single filers.
What the federal exclusion requires
Most state answers start here. The statute says “Gross income shall not include gain from the sale or exchange” of property that, during the five years before the sale, you owned and used as your principal residence for periods adding up to two years or more. The limit is “shall not exceed $250,000”, or $500,000 for a husband and wife who make a joint return and meet the statute’s conditions. See CMG’s home sale taxes page and exclusion calculator.
A worked example at a $400,000 gain
An illustration, not a return: a married couple in Maine sells their main home with a gain of $400,000 and meets the federal ownership and use tests. The gain is below the $500,000 joint exclusion, so it is not in federal adjusted gross income and, on the documents read, $0 is taxed by Maine. As a second illustration, computed below, suppose the gain were $600,000. The amount above the exclusion would then be $100,000, which is taxed at the graduated rates; this page computes no tax because the bracket depends on the rest of the return.
What is collected at the sale
Maine’s real estate transfer tax is “The rate of the tax is $2.20 for each $500” of value on the deed, and the statute says it is “imposed 1/2 on the grantor and 1/2 on the grantee”. From November 1, 2025 the statute adds $3.80 for each $500 of value above $1,000,000.
Separately, when Maine real property is bought from a nonresident, the buyer withholds “2.5% of the consideration received by the transferor (seller)” on Form REW-1-1040 under 36 M.R.S. 5250-A. The form says no withholding is required if the seller certifies Maine residency or if “The consideration for the property is less than $100,000;” It applies to nonresident sellers, not to Maine residents.
What changes in 2026
Maine: the 2026 schedule keeps rates of 5.8%, 6.75% and 7.15% but raises every breakpoint and adds a 2% surcharge above $1,000,000 for single filers; from November 1, 2025 the transfer tax adds $3.80 for each $500 of value above $1,000,000.
What the documents do not say
- The pages read never name section 121, so conformity is reasoned from the federal starting point. Maine’s rates are the 2026 schedule; the 2025 instructions are the base for the conformity statement. The married and head-of-household schedules were not summarized. The transfer tax exemptions were not read for a principal residence.
Common mistakes
- Treating the 2.5% nonresident withholding as a rule for Maine residents; the form covers nonresident sellers.
- Treating the transfer tax as a tax on your profit; it is computed on the value of the property, not on gain.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the sale.
Related: home sale taxes, state tax on home sale profit, how Maine taxes capital gains, Maine retirement taxes, and home sale exclusion calculator.
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Answer againSources
- 2025 Maine Income Tax Important Update and Form 1040ME General Instructions: https://www.maine.gov/revenue/sites/maine.gov.revenue/files/inline-files/25_1040me_gen_instr_w_cover_pg.pdf
- State of Maine Individual Income Tax 2025 Rates: https://maine.gov/revenue/sites/maine.gov.revenue/files/inline-files/ind_tax_rate_sched_2025.pdf
- Form REW-1-1040 Real Estate Withholding Payment Voucher for Transfer of Maine Real Property (2025): https://www.maine.gov/revenue/sites/maine.gov.revenue/files/inline-files/25_rew1_1040_ff.pdf
- Title 36, 4641-A Rate of tax; liability for tax (real estate transfer tax): https://legislature.maine.gov/statutes/36/title36sec4641-A.html
- State of Maine 2026 Individual Income Tax Rates: https://www.maine.gov/revenue/sites/maine.gov.revenue/files/2026-05/ind_tax_rate_sched_2026_rev.pdf
- 26 U.S.C. 121, Exclusion of gain from sale of principal residence (U.S. Code, GovInfo): https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partIII-sec121.htm
Sources: the primary documents linked above, read on October 8, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.