|
There are several tax
issues to address with the purchase of your property. These include
local property taxes, transfer tax, land gains tax and nonresident
withholding.
Property
Taxes
At the time of closing, an adjustment is made for property taxes
so that the buyer and seller are only paying property tax for the
time that they actually own the property. Depending on when taxes
are due and when the closing takes place, the buyer or seller may
receive a credit at the closing for property taxes that are paid
covering a period of time that the opposite party owned the property. Additionally, if the seller will receive a Property Tax Adjustment from the State of Vermont which will be given as a credit on the property tax bill, the buyer will need to reimburse the seller that amount less any portion of the credit applied to a paid installment. This will require the buyer to bring extra money to closing or sign an agreement with the seller to pay this amount at a later time.
This can be a somewhat complicated and confusing calculation. We
can review and explain the tax adjustment to be sure that you are
paying no more than your fair share of the property taxes.
Transfer
Taxes
The State of Vermont requires a transfer tax be paid whenever
there is a purchase of real estate. This tax is payable by the buyer.
However, it is the obligation of the seller to provide the completed
transfer tax return. The amount of the transfer tax is generally
one and a quarter percent 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 you use the property as your primary residence.
Vermont
Land Gains Tax
The sale of property which was not the seller's principal
residence or will not become the principal residence of the buyer
may be subject to a special Vermont Land Gains Tax ("VLGT'). You
must be concerned with this tax if sellers have not owned the property
at least six years. The VLGT is not the same as federal or state
income tax. The tax is computed based on a matrix taking into account
the profit the seller is making from the sale of the land (the VLGT
is not imposed on the profits from the sale of the buildings) and
the amount of time the seller has owned the property. This tax may
also be incurred if the property exceeds ten acres in size, even
though it was used as a primary residence. This tax is payable by
the seller. If the seller fails to pay the tax, it will become a
lien on the property and payable by the buyer. Therefore, it is
important for us to determine if the tax is owed by the seller and
then deduct it from the sellers' proceeds so that we are sure the
tax is paid and no lien attaches to your property.
Nonresident
Withholding
If seller is not a resident of the State of Vermont and/or
the United States, a special withholding tax on the proceeds from
the sale of property is imposed. The State withholding rate is a
maximum of two and one-half percent (2.5%) of the total sale price
of the property. The Federal withholding rate is a maximum of ten
percent (10%) of the sale price. The applicable regulations provide
that the amount of the withholding may be reduced if the seller
can show the government that his/her tax liability is less than
the amount of the withholding. To do that the seller must prepare
and file an application for both the State and Federal withholding.
The funds that are withheld are either applied to the seller's income
tax liability from the sale of the property or returned to the seller
when the seller files an income tax return. If the buyer fails to
withhold this money from the seller's proceeds, it will become a
lien on the property and become payable by the buyer. Our role will
be to determine if this tax is due and make arrangement to withhold
the money from the seller's proceeds at closing.
The information
you obtain at this site is not, nor is it intended to be legal advice.
You should consult an attorney for individual advice regarding your
own situation.
|
