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Vermont Real Estate Tax Info

This information is courtesy of Vermont Property Owners Report , PO Box 1564, Montpelier, VT 05601

Taxes On The Buyer

Vermont Property Transfer Tax

First enacted in 1968, the Vermont Property Transfer Tax is a tax on the sale of Vermont real estate which is imposed at the time a deed is presented to the town clerk for recording. The buyer is liable for the tax unless the parties agree that the seller will pay the tax.

At present, the tax rate is 1.25% of the sale price of the real estate being sold. Two lower tax rates exist for particular types of property:

1) 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, but rises to the regular rate of 1.25% for that portion of the sale price that is above $100,000.

2) For property that is enrolled in the state's current use program (a program which reduces property taxes on agricultural and forest land) or for property which is a working farm at the time of the transfer, the transfer tax is lowered to .5% of the entire sale price. If current use land is converted to another use within three years, or a working farm is taken out of agriculture within six years, a buyer who paid the lower transfer tax rate of .5% must pay an additional tax of .5%. [Current use land which is developed may also be subject to a penalty of 10% or 20% of the fair market value of the property at the time it leaves the program, depending on how long it was in the program.]

The law provides for several exemptions from the transfer tax. Some of these include: a transfer directly to a creditor to secure a debt; a transfer without payment between a husband and wife, parent and child, grandparent and grandchild, or partners in a civil union; and transfers to a corporation, partnership or LLC at the time of formation, if no gain or loss is recognized under the Internal Revenue Code.

Usually the property transfer tax form is filled out by the seller's attorney and signed by the parties at the closing. Note that the tax only applies to real property, so any personal property such as kitchen appliances, furniture, etc. is not taxed. The greater the percentage of the total sale price that is allocated to personal property, the lower the property transfer tax will be.

For information on the property transfer tax, call the Vermont Tax Department at 802-828-2542.

Taxes On The Seller

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 Vermonts 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 currently has five brackets: 3.6%, 7.2%, 8.5%, 9.0%, and 9.5%.

For real estate held a year or less and sold for a gain, the Vermont tax is at the sellers regular tax rate. Long-term capital gains, which generally means assets held longer than one year, qualify for a 40% exclusion from Vermonts income tax, with the balance taxed at the sellers regular rate.

In early 2004, Gov. Jim Douglas proposed eliminating the 40% exclusion, but he was rebuffed by the Legislature. Therefore, long-term gains from the sale of land, vacation homes and investment property still qualify for the 40% exclusion..

For a nonresident of Vermont selling real estate here, the amount of tax due is calculated by establishing what the Vermont tax would be if the seller's income were all taxed in Vermont, then charging the same percentage of this figure that the Vermont real estate gain is of the seller's total income for the year. Any taxes which a nonresident pays to Vermont for a capital gain can usually be used to offset tax liability to the seller's state of residency, if a tax applies in that state.

Vermont Real Estate 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. The measure was enacted in 1989 as a collection tool.

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. A nonresident includes someone who once lived in a Vermont property as a primary residence but has already begun living in another state or country.

The amount withheld is considered a payment against the Vermont income tax on the funds received by the seller. If no gain occurred or the amount withheld is more than the tax, the seller can get a refund. A buyer who fails to withhold 2.5% of the sales price at the closing is personally liable for the tax.

Withholding from a nonresident is not necessary, or may be in a reduced amount, if before the closing the buyer or seller obtains a certificate from the Commissioner of Taxes. These are available if 1) no tax will be due, 2) the seller or buyer has provided adequate security to cover the tax liability, or 3) reduced withholding is appropriate because the 2.5% amount exceeds the sellers maximum tax liability.

For more information on the Vermont withholding tax, call the Vermont Tax Department at 802-828-2777.

Vermont Land Gains Tax

Sellers who have a gain on the sale of Vermont land may be liable for this unique tax designed to deter land speculation. First effective in 1973, the tax imposes very high taxes on sales of land held a short time and sold for a large profit.

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. This can be based on an appraisal, or by using allocation guidelines from the Vermont Department of Taxes.

According to the Departments allocation schedule, a house and ten acres in a town other than Burlington has 30% of its value in the land. There are other allocation percentages provided for condos, lakeshore lots, property in Burlington, and lots of various sizes outside Burlington.

Any gain from selling timber or timber rights within six years is not covered by the land gains tax unless the property consists of 300 or more acres of contiguous land. In this case, the gain from any timber sale is counted in the land gains tax calculation, if the underlying land is sold within six years. The holding period for the timber is considered to be the same as for the land. Land in the current use program is excluded from this provision.

Under the law, certain types of land are not subject to the land gains tax, including the first 10 acres of land which was part of the principal residence of the seller within one year prior to sale, or which will be occupied as the principal residence of the buyer within one year after the sale (if there is no house on the property, the buyer can take up to two years to build and occupy a primary residence and still qualify for this exclusion).

There is also a builders exemption for up to ten acres of land where a house will be built and sold for use as a primary residence. The house must be started within one year, completed within two years, and sold within three years.

Sales of vacation homes held less than six years and sold for a gain create land gains tax liability on the lands increase in value, but if a vacation home changes use from a vacation home to a primary home, or vice versa then up to ten acres of the land the vacation home sits on is not subject to the tax.

Unless a certificate is obtained from the Tax Department ahead of time, the buyer must withhold 10% of the purchase price of the land at the time of the transfer, if the property has been held fewer than six years. This amount must be remitted to the Tax Department immediately, along with a land gains withholding tax form.

The seller must file a land gains tax return within 30 days of the transfer, paying any balance of the tax or requesting a refund.

For more information on the land gains tax, call the Vermont Tax Department at 802-828-2550.

Taxes On Holding Vermont Real Estate:
Property Taxes, Act 60, & Act 68

Vermont Property Taxes

Compared to most other states, average property taxes in Vermont have historically been quite high. Past estimates have placed Vermonts average property tax burden as the second or third highest in the nation (New Hampshire usually is first).

As a result of the high tax rates, and the fact that rates have varied considerably from town to town, the property tax system in Vermont has often been the subject of intense debate and reform efforts. In 1997, the states school property tax system was radically overhauled by Act 60, and then was tweaked further in 2003 by Act 68.

Although tax rates are still high in the wake of these laws, some property owners are eligible for substantial tax breaks. Owners of primary residences whose household income is under $75,000 ($88,000 in some cases) may qualify for greatly reduced school taxes on their home and up to 2 acres. And primary home owners with incomes under $47,000 may qualify instead for a reduction in their assessment, and/or a rebate on their total property taxes, including municipal taxes.

In addition, owners of 25 acres or more of farm or forestland may significantly reduce their property taxes by enrolling in the states current use program, which is designed to prevent development of open land. Some smaller parcels qualify if used for agricultural purposes.
For Vermont property owners who dont qualify for one of these tax breaks such as owners of primary homes with incomes over $75,000 (or $88,000 in some cases), or owners of vacation homes some comfort can be taken from the fact that property taxes are a deductible expense on federal and state income taxes.

The property tax system in Vermont consists of two processes: budgeting and listing. Budgeting consists of determining how much the town needs to raise for funding schools and municipal expenses, such as maintaining local roads.

Listing means determining what properties are taxable and what their taxable values should be; listers are the town officials who determine those values. Property taxes are assessed on the value of all real property and some business-owned personal property as of April 1 of each year.

Town listers are obligated under law to appraise property at fair market value, though as a practical matter most properties in a rising real estate market are assessed at less than fair market value. Assessing properties is a difficult job under the best of circumstances, and estimating values is sometimes just a well-educated guess.

The listers may legally alter a propertys valuation each year, but normally this is only done when some major change has been made, such as building a garage. Otherwise, the valuation should only change when the town undergoes a complete reappraisal. Nevertheless, a few listers reportedly do increase the listed value of a recently-sold property to its sale price, a practice which is improper and unfair to the property owner unless all other properties in town are also being reappraised.

For property owners who believe that their property assessment is too high, or that they are not being assessed fairly compared to similar properties in town, Vermont does have a well-established appeal system that starts in the spring with grievance hearings before the town listers. For more information on property tax appeals, see the booklet on this subject written and sold by the publisher of Vermont Property Owners Report.

Once a town knows the value of all property in town (called the grand list) and how much it needs to raise for municipal expenses, it can set the municipal tax rate. The state sets each towns homestead and nonresidential school tax rates, with the former depending on the level of local school spending. In the average town, school tax rates are about twice as high as the municipal tax rate.

Property taxes on a particular property are calculated by dividing the listed value by 100 and multiplying that by the combined school and municipal tax rate. Thus a home with a listed value of $100,000, in a town with a total tax rate of $2.00, would pay $2,000 a year in property taxes.

Tax bills are usually sent out in the summer and are due in between one and four installments, depending on the town. In many small towns, the entire tax bill is due in November.

The only way to compare tax rates among towns is by using the effective tax rate, which is a rate calculated as if all properties in town were listed at 100% of fair market value.

The data relating to real estate for sale on this web site comes in part from the BROKER RECIPROCITY Program of the Vermont Real Estate Information Network. BROKER RECIPROCITY information is provided exclusively for consumers' personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Information on this web site is deemed reliable but not guaranteed.