Short-Term Rental Taxes in Maryland: What Investors Need to Know in 2025
Maryland does NOT fully conform to federal bonus depreciation. Additionally, Maryland imposes a mandatory county income tax (up to 3.2%) on top of the state income tax, creating combined marginal rates that can approach 9%. Work with a Maryland CPA to model the combined impact.
Maryland's STR market features Ocean City (the mid-Atlantic's largest beach resort), Deep Creek Lake (Maryland's only freshwater resort area), and the Eastern Shore communities along the Chesapeake Bay. The state's tax environment is complex: non-full conformity to bonus depreciation, a two-layer income tax structure (state + mandatory county income tax), and varied hotel tax rates across the state's 23 counties.
Maryland's Two-Layer Income Tax Structure
Maryland is unusual in that it imposes a mandatory county income tax on top of the state income tax, collected and remitted together on the Maryland state return. The state income tax is 2–5.75% (with the top 5.75% rate applying to income over $250,000 for joint filers). The county income tax is set by each county and ranges from 1.75% (several lower-tax counties) to 3.2% (Montgomery County and Prince George's County).
For an investor residing in Montgomery County: combined state + county top rate = 5.75% + 3.2% = 8.95%. For Garrett County (Deep Creek Lake area): 5.75% + 2.65% = 8.40%. These combined rates are among the highest for a state without the 'brand name' reputation for high taxes.
Maryland's Bonus Depreciation Non-Conformity
Maryland does not fully conform to federal bonus depreciation. The state requires investors to add back a portion of the federal bonus depreciation deduction and use an alternative depreciation method on state returns. The specific current-year rules can change — consult a Maryland CPA for the applicable treatment in your tax year. At combined state + county rates that can approach 9%, the state timing cost of the addback is significant.
Hotel Taxes by Maryland Market
| Market / County | State Sales Tax | County Hotel Tax | Estimated Total |
|---|---|---|---|
| Ocean City (Worcester County) | 6% | 6.5% | ~9–11% |
| Deep Creek Lake (Garrett County) | 6% | 4% | ~10% |
| Annapolis (Anne Arundel County) | 6% | 7% | ~13% |
| Frederick / Middletown (Frederick County) | 6% | 5% | ~11% |
| Eastern Shore (Talbot County — St. Michaels) | 6% | 5% | ~11% |
| Assateague Island (Worcester County) | 6% | 6.5% | ~9–11% |
Top Maryland STR Markets
Ocean City: Maryland's premier beach resort and one of the most visited beach destinations on the East Coast. Ocean City draws millions of visitors annually from the DC metro area, Baltimore, and the broader Mid-Atlantic region. The Boardwalk and beachfront are anchor attractions. STR properties range from modest Ocean City condos to large beach block homes. The market is intensely seasonal (peak June–August) but generates very high peak-season revenue.
Deep Creek Lake: Maryland's only significant freshwater resort area, located in Garrett County in the far western panhandle of the state. Deep Creek Lake draws visitors for boating, water sports, fishing, and winter skiing at Wisp Resort. An increasingly popular four-season market with growing STR supply. Properties with lakefront access command the highest rates and occupancy.
Eastern Shore (St. Michaels, Chestertown, Oxford): The Maryland Eastern Shore along the Chesapeake Bay offers a distinctive STR market featuring historic maritime towns, water views, crabbing culture, and proximity to the DC/Baltimore metros. St. Michaels and the surrounding Talbot County area have an established boutique STR market.
Cost Segregation in Maryland: Important Despite State Complexity
Despite Maryland's complex state tax environment, federal cost segregation benefits are fully preserved and the state benefit, while timing-delayed, ultimately accrues. For a $550,000 Ocean City beach home with $130,000 in cost seg deductions at 37% federal, the year-one federal savings are $48,100. The Maryland state timing penalty at a combined 8.5% effective rate on the disallowed deductions is approximately $11,050 in year one — recovered as accelerated Maryland deductions in subsequent years.
Estimate Your Maryland STR Tax Savings
Maryland's combined state + county income tax makes strategic cost seg planning especially important. Get your free estimate to see your year-one net benefit.
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