Blue Hill Bay Property Rentals (and Real Estate!)

“A surprise is only delightful if it isn’t waiting for you on a tax return.” — A modern proverb based on a quote by Ambrose Bierce

Chelsea and I are real estate agents (as well as property rental managers) and members of the National (and Maine) Association of REALTORS®. We never fully appreciated how much time, knowledge, and care real estate professionals bring to every transaction until we started working with buyers and sellers—and realized just how much goes on behind the scenes.

Which brings us to something we didn’t know—and maybe other homeowners don’t either.

Under current federal law, when you sell your primary residence, you can exclude up to $250,000 in gains from capital gains tax—or $500,000 if you’re married. That sounds like a generous cushion, but those limits were set back in 1997. Maine coastal property values have climbed dramatically since then, and many homeowners who bought modestly decades ago now have equity well above those thresholds.

Here’s what the numbers can look like:

Say a couple purchased a coastal Maine home in 1995 for $180,000. Today, it’s worth $780,000—a scenario that is not at all unusual along our coast. Their gain is $600,000. After the $500,000 married exclusion, $100,000 of that is taxable.

• For a married couple: In a middle-income household, that $100,000 is taxed at 15% federally (a $15,000 bill). Maine then taxes the same gain as ordinary income at rates up to 7.15%, potentially adding another $7,150. Total tax on that gain: roughly $22,150.
• For a single seller: In the exact same situation, the exclusion drops to $250,000, leaving $350,000 taxable. At 15% federal and 7.15% Maine, that adds up to approximately $77,525 in combined taxes.

Higher earners face even steeper numbers. The federal rate climbs to 20%, and an additional 3.8% Net Investment Income Tax (NIIT) can kick in, pushing the combined federal and state rate to nearly 31%.

For a homeowner who bought modestly and watched their property appreciate over decades, this bill can be unexpected, and can add an unwelcome financial burden when trying to downsize, move closer to family, or find a more manageable property.

The National Association of REALTORS® is actively pushing to raise these exclusion limits to reflect today’s reality. Their position is straightforward: the rules should keep pace with the market. Until they do, sellers in appreciating markets like Maine are carrying a tax burden that was never intended for them.

Let’s Navigate the Market Together

We love helping our vacationing guests experience the best of the Blue Hill Peninsula, and we bring that same passion to helping people navigate the real estate market. If you’re thinking about selling your home, it’s incredibly important to understand exactly where you stand before you list. Finding your original purchase records and factoring in years of home improvements can make a massive difference in your final numbers.

That is exactly where we come in. Brenda and Chelsea Horton, along with our mentor and Broker, Sara Leighton, form The Downeast Group at Harcourts Waterfront & Fine Properties. We don’t just list homes; we help you look at the whole picture so you can make smart, protected moves for your financial future. Whether you are ready to downsize, looking to transition an investment property, or just curious about what your equity looks like today, we are here to help you navigate it all with confidence.

For more information and resources:

• Links to NAR Capital Gains Information
• IRS Publication 523 — Selling Your Home
• Maine Revenue Services

> A Quick Note: Tax rates and thresholds vary based on your individual income and circumstances. We always recommend consulting a CPA or tax advisor before making financial decisions.