By Susan Parks, REALTOR®
If you’ve decided that you no longer want to be a landlord, or you’re considering selling a rental property, there are unique considerations for selling your investment property.
Selling your rental property in Maryland means you must navigate specific processes, laws, and tax implications. Here are a few:
Right of First Refusal Notice
Selling a rental property is similar to any other sale, but you must take the rights of the tenants into account.
Most Maryland residential tenants have an exclusive negotiation period, which means the landlord is required to send their tenant(s) written notification of their rights to make an offer to purchase the property. The notification should include:
- The price the seller is intending to offer the property to third parties.
- The other terms that are acceptable to the seller.
- A statement that this notice is not a contract of sale, but it is asking if the tenant would like to give the landlord an offer.
- The deadline to submit an offer and the timeframe of the tenant’s exclusive negotiation period.
The tenant can negotiate for up to 30 days or refuse the offer to purchase the property.
The Tenant Purchase Process
If the tenant comes to an agreement with you to purchase the property, the sale can proceed like any other sale.
However, if you and the tenant do not come to an agreement to purchase after completing the legally required negotiation process, you may then be able to list the home for sale on the open market.
Additionally, if you want to accept an offer from someone other than the tenant that is 10% less or lower than the price you offered to your tenant, you are legally required to again provide an opportunity for the tenant to match the other offer.
Learn more about this and access the Right of First Refusal portal at the Office of Tenant and Landlord Affairs website.
If a tenant does not purchase the property and moves out, remember that their security deposit will need to be returned with interest, minus the cost of any documented repairs. You can find a helpful security deposit calculator on the Maryland REALTORS® website.
For more information on tenant rights in Maryland, visit the Maryland Office of Tenant and Landlord Affairs website resources on the current Tenant Bill of Rights and the Right of First Refusal.
Listing a Tenant-Occupied Home for Sale
If the tenant does not purchase the property and you want to sell the house before they vacate the property, there are a few steps you will need to take to ensure the tenant’s rights are respected for the remainder of the lease term.
- Active leases cannot be terminated by a sale. The buyer will need to be informed that there is an active lease on the property, the length of time left on the lease, and the terms of the lease. These terms will need to be respected by the new owner.
- You will need to give the tenant advance notice if you want the tenant to vacate the property at the end of the lease term. This notice can be 60 to 90 days, depending on the type of lease in place.
- The tenant will also need to agree to common listing tools like a lock box, a sign in the yard, and showings based upon the terms of the lease. Tenants have possession and the “right of enjoyment of the property” until they vacate, so any showings will have to take place on days and times agreeable to the tenant. Most tenants are amenable to showings, but sometimes the process can be difficult.
You can make the decision about whether to list the property during the lease or wait until the tenant vacates based on your needs and relationship with the tenant.
Taxes on Rental Sales
Once your property is under contract, there are a few tax implications to discuss with your tax advisor, accountant, or lawyer. First, capital gains exemptions normally available for owner-occupied homes are not likely to be available to a landlord, unless you have lived in the home for 2 or more years of the past 5 years. When you sell, you will have two options: pay your capital gains tax out of the money you make on the property at settlement or defer payment with a 1031 Tax Deferred Exchange.
Additionally, if you are no longer a resident of the State of Maryland, 8.25-8.75% (as of July 1, 2025) of the sales will be withheld by the state as an estimated pre-payment on your final Maryland tax bill. Most people will get some (or even all) of that money back once you file your final state tax return. Again, please consult your tax advisor, accountant, or lawyer for more information about your specific tax situation.
Contact a REALTOR® for More Help Selling Your Rental
Now that you are armed with some of the facts about selling your rental property, you can feel confident in your decision to sell. Your local Maryland REALTOR® can give you more information about the current local market, an estimate of your property’s worth, and more to help you make that decision.
