Taxes On The Buyer
Vermont Property Transfer Tax
Taxes On The Seller
Vermont Income Tax
Vermont Land Gains Tax
Vermont Withholding Tax
Federal Withholding Tax
Property Taxes in Vermont
Proration of Property Taxes at Closing
Vermont Property Tax Adjustment Credit
Vermont Homestead Tax Rate
Vermont Property Transfer Tax
The Vermont Property Transfer Tax is a tax on the sale of Vermont real estate which is paid by the buyer. The tax rate is 1.45% of the sale price, although for property that will be the primary residence of the buyer, the transfer tax is lowered to .5% on the first $100,000 of the sale price.
(back to top)
Vermont Income Tax
Vermont taxes capital gains, just as the federal government does. The gain is due on the sale of real estate here, whether or not the seller is a resident of Vermont, but there is a substantial exclusion if the property being sold was the primary residence of the seller.
Under Vermont's system, federal rules for calculating basis and gain on the sale of real estate apply, including the generous exclusion from the federal capital gains tax for those selling primary residences.
Specifically, you may exclude $250,000 of gain (or $500,000 if you are married filing jointly) on the sale of a house, if it was your principal residence for two out of five years before the sale. This exclusion can be used more than once, but only for one sale every two years.
For many years, Vermont income taxes were calculated as a percentage of federal income liability. But beginning in 2002, the state dropped the so-called "piggy-back" system and enacted its own rate schedule, which has five brackets, with these rates for 2009: 3.55%, 7%, 8.25%, 8.9%, and 9.4%.
For real estate held a year or less and sold for a gain, the Vermont tax is at the seller's regular tax rate. Until recently, Vermont excluded 40% of long-term capital gains from Vermont's income tax. But starting July 1, 2009, long-term capital gains are taxed like ordinary income, with an exclusion for the first $2,500 in annual capital gains.
(back to top)
Vermont Land Gains Tax
Sellers who have a gain on the sale of Vermont property may be liable for this tax which is intended to deter land speculation. The land gains tax is only imposed on the gain from the sale or exchange of Vermont land that was held less than six years, with several exceptions. It applies in addition to any capital gains income tax that may also be due.
The tax is determined at a flat rate based on the ratio of gain to basis. The tax goes from a high of 80% for gains over 200% on land held less than 4 months to a low of 5% for gains of less than 100% on land held between 5 and 6 years. Property held longer than 6 years is not subject to the tax.
The tax only applies to land, not buildings. Where buildings are present, an allocation of the sale price between the land and the building(s) must be made. The Tax Department prefers to use the allocation of value that is shown on the town listers' tax assessment card for that property.
(back to top)
Vermont Withholding Tax
Vermont uses a withholding tax to make sure that nonresidents pay capital gains taxes due to the state of Vermont upon the sale of real estate here. When Vermont property is sold by a nonresident of Vermont, the buyer is required to withhold 2.5% of the amount paid for the transfer and transmit this amount to the Vermont Department of Taxes within 30 days of the sale. The withheld funds are either applied to your income tax liability from the sale of the property or returned to you when you file your income tax return. The buyer must withhold and file VT Tax Form RW-171.
(back to top)
Federal Withholding Tax
If the seller is not a U.S. citizen a federal withholding is also imposed. The Federal withholding is a maximum of ten percent (10%) of the sale price. The governing law is the "Foreign Investment in Real Property Tax Act of 1980" (FIRPTA). The withholding agent must file IRS Form 1042-S.
(back to top)
Proration of Property Taxes
Each Vermont town usually sends out tax bills in the summer. Payments are due in one to four installments, depending on the town. In many small towns, the entire tax bill is due in November. Penalties and interest are often levied on late payments. When a property is sold the property tax bill is divided between the seller and the buyer at closing. This is known as prorating taxes.
Depending on when taxes are due and when the closing takes place, the buyer or seller will receive either a credit or debit at the closing for their share of the property tax bill covering the period of time they owned the property.
(back to top)
Vermont Property Tax Adjustment Credits
Depending on a person's income and the amount of his or her property taxes, a property owner may receive a Property Tax Adjustment Credit from the State of Vermont. The credited funds are paid directly to the town and thereby reduce the property tax bill. If so, the buyer will also have to reimburse the seller for the amount of this tax credit.
(back to top)
Vermont Homestead Tax Rate
The total tax amount shown on a Vermont property tax bill includes a sum to pay for schools and a sum to pay for other town services (roads, fire, etc). The school portion of the bill is based on different rates depending on whether the property is used as a primary residence. A lower tax rate is assessed for property used as a primary residence. A Homestead Declaration form (Form HS 122) must be filed by April 15 each year with the Vermont Department of Taxes in order to receive the lower tax rate for the school portion of the tax bill.
(back to top)
