There are several tax issues to address when conveying Vermont real estate. These include property taxes, transfer tax, land gains tax and nonresident withholding.
At the time of closing, an adjustment is made for property taxes so the buyer and seller pay taxes reflecting the time that each owns the property. If the seller is to receive an income sensitive Property Tax Rebate as a credit on the tax bill, the buyer will reimburse the seller that amount less any portion of the credit applied to an installment already paid. This will require the buyer to bring additional money to closing beyond the normal tax adjustment. The buyer will then receive the benefit of the seller’s Property Tax Rebate as a credit on the remaining tax installments.
The State of Vermont requires a transfer tax to be paid whenever there is a purchase of real estate. This tax is payable by the buyer. The amount of the transfer tax is generally 1.45% of the purchase price. The tax is discounted to one half of one percent for the first $100,000.00 of the purchase price if the property will be the primary residence of the purchaser. There are several transfer tax exemptions for special circumstances such as a transfer between parent and child for no consideration.
Vermont Land Gains Tax
The sale of property owned by the seller for less than 6 years is potentially subject to Vermont Land Gains Tax. The purpose of this tax is to discourage short term speculative transfer of land at high profit. Transfer of up to 10 acres which was the seller’s principal residence or will become the principal residence of the buyer is exempt from the tax. The tax is applied only to the values attributable to the land. Buildings are not subject to the tax. The seller is responsible for paying the Land Gain Tax. The tax can be quite high if the property is held for a short time and sold for a large gain.
If seller is not a resident of the State of Vermont, a withholding tax on the proceeds from the sale of property is imposed. The withholding is applied to potential state capital gains tax which might become due as a result of the sale. The withholding rate is a maximum of two and half percent (2.5%) of the sale price. The amount of the withholding may be reduced or eliminated if the seller applies to the Tax Department for an early determination of the State capital gains tax due. Often there are exemptions available for the sale of a primary residence which exempts the sale from the withholding tax.