A tax generated by property sales helps power Maine’s various affordable housing initiatives, including a program that assists first-time home buyers and another to prevent foreclosures. Lawmakers are considering adding a new initiative to the list: funding homeless shelters. But deciding how to allocate the money is complicated. 

The real estate transfer tax — which collects money from both buyers and sellers each time a property is sold — is expected to grow significantly in the coming years, thanks in part to Maine’s burgeoning housing market and recent changes to the tax.

Its revenue has trended steadily upward in recent years as the median price of a home in Maine has increased. As of late last year, the tax imposed on the portion of a property sale over $1 million nearly tripled. 

As a result, the tax is projected to bring in $57.4 million this year and as much as $68.6 million by 2029, up from $51.9 million in 2025, according to the state’s Revenue Forecasting Committee. The totals don’t include the roughly 10 percent kept by counties charged with collecting the tax and recording the deeds.

More money brought in by the tax means more money for affordable housing initiatives at a time when the housing market continues to price people out. But the reliance on that tax alone means those programs could be stressed in a real estate slump and raises questions about what issues to prioritize now, those involved in funding decisions and tax researchers said.

What the tax does

A transfer tax is collected any time a person buys a piece of real estate in Maine. The standard rate is $2.20 per $500 in property value. The tax is split by the buyer and the seller. The sale of a $395,000 home, the median cost of a house in February, would incur a $1,738 tax, according to the Maine Revenue Service. 

Last year, the Maine Legislature changed the rules for properties worth over $1 million sold after Nov. 1, 2025. Those now incur the standard rate for the first $1 million, then $6 for every $500 in value above that.

These taxes are sometimes called “mansion taxes” because they are meant to target higher earners purchasing more expensive property. Under the new rules, a $3 million house would generate about $28,000 in taxes, up from about $13,000 under the previous requirements.

The mansion tax came about as money set aside for Maine’s affordable housing construction program was running out. Originally introduced as a standalone bill, lawmakers later incorporated the increase into last year’s budget bill.

Greg Payne, Gov. Janet Mills’ senior housing policy advisor, tied support for increasing the tax to Maine’s growing luxury home market. The proliferation of homes selling for over $1 million is distorting the state’s market, including making it more difficult for first-time home buyers to find affordable options, he said.

That means “many Maine families continue to rent because they can’t afford to buy a home,” Payne said. But, “they also face extraordinary price pressures in the rental market.”

By increasing the tax, Maine was able to create its first dedicated revenue source for affordable housing production, Payne said. The increased tax rate is expected to generate $17 million for this fund in its first year.

A transfer tax was historically meant to compensate a county’s registry of deeds, which is responsible for recording property deeds and collecting the money, said Jared Walczak, a fellow at the right-leaning Tax Foundation think tank. Some states collect just a small fee to cover those expenses, but others impose a heftier tax and use that money to pay for general government expenses or priority programs, such as housing.

In the early 2000s, transfer tax revenues were fairly evenly split between the state’s general fund and Maine’s HOME Fund, which helps pay for first-time home buyer programs. In some years, particularly around the 2008 market crash, most of the money was pulled into the general fund.

As revenues have trended upward, more has gone into different housing initiatives, such as paying down housing bonds, foreclosure prevention programs and Maine’s newly created Home For Good, a program that provides housing and on-site support services for people transitioning out of homelessness.

Whether the tax is a useful way to generate money for these initiatives depends on who you talk to. Walczak said a transfer tax allows public officials to say they are raising revenue by charging new buyers of a home proportionally, rather than the politically risky prospect of raising property taxes for everyone.

But he argued a transfer tax penalizes new buyers and movers by adding an additional fee to already expensive housing. And in Maine, which the Tax Foundation ranked 45th in property tax competitiveness in 2026, though 26th in overall taxation, that can present an additional barrier for new, less wealthy homebuyers or discourage people from moving who might otherwise do so, he said.

Maine does employ measures to defray the cost of the tax through some exemptions, including for people using the Maine State Housing Authority’s first-time buyers program or deeds between certain family members.

Part of the transfer tax’s appeal is that the tax “only falls on a small group of taxpayers, those who are buying and selling properties,” said Ron Rakow, a fellow at the Lincoln Institute of Land Policy, a land-use think tank affiliated with the online Claremont Lincoln University. 

But revenues from the tax can be volatile, Rakow said. The amount raised can go up when prices are high and properties are selling fast, and can decrease when the market cools.

That fluctuation was visible in 2009 when the housing mortgage crisis hammered state and local revenue. Then, transfer tax revenue dropped from $24.7 million to $17.8 million; and the Legislature took 96 percent of those dollars for the general fund compared with 71 percent the previous year. 

To help Mainers during the downturn, lawmakers imposed a transfer tax on foreclosed properties starting in 2010 and dedicated all the proceeds to the state’s consumer credit protection bureau’s foreclosure prevention efforts. It generated $1.5 million, or about 8 percent of that year’s total revenue. As foreclosures have decreased, revenue from those sales have as well, with $80,191 projected for this year.

Maura Pillsbury, a tax policy analyst for the progressive Maine Center for Economic Policy, said Maine’s transfer tax had lagged behind other New England states for decades. She argued that the increased tax rate for homes over $1 million will effectively raise revenue by targeting buyers who are able to afford the extra cost.

For someone looking to buy an expensive home, that tax “is not going to change whether they make a purchase or not,” Pillsbury said.

And while the revenue stream from transfer taxes can be volatile, Pillsbury said there are signs, such as Maine’s slowly increasing population, that show it will likely continue as a viable funding mechanism.

‘Moving chairs around the deck’

The increase in funding has prompted prolonged debates about what to do with it.

A bill recently voted out of the legislative Housing and Economic Development Committee aimed to help the state’s homeless shelter system by taking money from the increased transfer tax that would have otherwise gone directly to county governments. The proposal was introduced after some shelters, including a youth shelter in Mars Hill and a long-running program in York County, closed in 2025 due to insufficient funding.

Shelter advocates and the governor’s office supported L.D. 2124 and pitched it as a way to make counties contribute more to shelters. According to Payne, counties contribute $68,000 in total to shelters each year, compared with $7 million from the state. 

But the proposal quickly ran into opposition from county administrators and municipal groups, who argued that the money could be raided in the future under a different governor or legislature and questioned why the burden should fall on county governments.  

Jean-Marie Caterina, a Cumberland County commissioner and the co-chair of the Maine County Commissioners Association’s legislative policy committee, said the proposal came at a time when some counties are struggling financially. They are especially burdened by the cost of Maine’s jail system, she said.

“It’s fabulous to increase money for the homeless, but if this so-called mansion tax is going to increase the state’s portion, why hit the counties? That makes no sense,” she told The Maine Monitor.

The discussion came to a head at a March 3 work session. Some lawmakers, such as Sen. Richard Bennett, I-Oxford, said the state should take a more direct role in helping shelters by taking money from the general fund, not other housing initiatives or from counties.

“They are at the very end of the line in terms of their ability to control what they’re doing,” he said of Maine’s county governments. “They’re getting pressured because the real line of contribution is from the property tax, and we all know there’s immense pressure from property taxes.”

The bill was ultimately amended to take 2 percent from the newly created Housing Production Fund, a program to support housing projects eligible for federal low-income housing tax credits, and use that to support shelters instead.

Four Republicans and Bennett voted against it, supporting a different amendment that would have taken the money from the general fund. It has been engrossed by the Maine House of Representatives and Senate but awaits further action in both chambers.

Some lawmakers, such as Housing and Economic Development Committee co-chair Rep. Traci Gere, D-Kennebunkport, acknowledged the challenging trade-offs that are being made as the state works with a limited pool of money.

“I feel like we’re moving chairs around the deck,” Gere said. ”One proposal is to take two percent of that money away from the housing production fund that would otherwise go to producing affordable housing in counties all across the state, with the idea that that has been available for people in vulnerable situations to actually have a permanent place to live.” 

“And so I just want to make sure that we’re being really clear about what we’re taking from, and what we’re moving things to,” she went on to say.

This story was originally published by The Maine Monitor, a nonprofit civic news organization. To get regular coverage from The Monitor, sign up for a free Monitor newsletter here.