Maine installment sale option for nonresidents

Maine’s tax laws closely parallel federal laws in their treatment of installment sales. Generally, both jurisdictions defer the resulting gain, taxing it periodically and proportionately as the related sale proceeds are collected over time. Taxpayers can opt out of the installment treatment, but only in year one, by reporting the full gain during the year of the sale.

Maine recently altered its rules somewhat, but only for filers who are nonresidents at the time of the property transfer or during the year of the new optional election. The rules continue to allow for installment treatment or opting out in year one, but also now allow a taxpayer who began use of the installment treatment to opt out in any subsequent year by reporting all remaining deferred gain during that year. This election has no impact on the taxpayer’s federal reporting, and is not available to Maine residents. It is available for tax years beginning on or after 1/1/19.

Although this feature will accelerate income, it may be appealing to nonresidents who may have sold property that represented their only connection to Maine. By making this election, they can avoid having to file numerous annual state income tax returns (over the life of the installment contract) simply to report a lone source of Maine taxable income.