Manchester Vermont Real Estate Blog

Buyers and sellers are usually concerned about what their expenses will be at closing. In Vermont both parties will have their own legal representation at closing. Each attorney will advise their respective client(s) regarding closing costs. One of the areas that will surely be part of the discussion is taxes.

As in most states, Vermont has its own set of potential tax liabilities that are specific to our state. Some of these tax liabilities will be the responsibility of the buyer and some the seller. Not all of them will apply in every real estate transaction. Here is a brief description of the taxes most commonly associated with Vermont real estate transactions.

The Vermont Property Transfer Tax is often jokingly referred to as the welcome to Vermont tax. It is a tax that is imposed on the buyer. It is collected at closing and is paid when the deed is recorded with the town clerk. The tax rate is 1.25% of the sale price although it may be lower on the purchase of a primary home or on property that is enrolled in the current use program. There are also several exemptions to the transfer tax. For more detailed information on this tax, click here or call the Vermont Tax Department at 802-828-2542.

The Vermont Land Gains Tax was created to deter land speculation in our state. It only applies to the sale of land or in the case of a house or building to the portion of the sale price attributable to the land’s value. The amount of the tax is variable depending on the amount of time the seller has owned the property and the size of their capital gain. The tax rate ranges from as high as 80% down to as low as 5% and phases out completely on property held longer than 6 years. There are also exemptions if the property is a primary residence or is going to be used as a primary residence within a designated period of time. The tax is the responsibility of the seller unless otherwise agreed to by both parties. For more detailed information on this tax, click here or call the Vermont Tax Department at 802-828-2542.

The Vermont Real Estate Withholding Tax applies when the seller is a non-resident of Vermont. In that situation 2.5% of the sale price is withheld from the seller’s proceeds at closing and forwarded to the state as a partial payment of the potential income tax the seller will owe on the presumed capital gain. The seller can avoid or reduce this withholding if they are able to demonstrate prior to closing that they will not owe any taxes or will owe a lesser amount. The seller’s attorney will be able to help them obtain the necessary certificate from the state in these instances. For more detailed information on this tax, click here or call the Vermont Tax Department at 802-828-2542.

There will also be a proration of prepaid property taxes at the closing with the buyer reimbursing the seller. However a detailed discussion of Vermont’s state wide property tax will have to be left for a future post.