TAXES

Navigating the tax landscape is a crucial aspect of transferring real estate in Vermont. This process involves understanding and addressing various taxes such as property taxes, transfer tax, land gains tax, and nonresident withholding tax. At Peet Law Group, our attorneys possess the expertise and experience to guide our clients through the complexities of real estate-related taxes, ensuring a smooth and compliant transaction.


Property Taxes:

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. Suppose the seller is to receive an income-sensitive Property Tax Rebate as a credit on the tax bill. In that case, 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.


Transfer Tax:

The State of Vermont requires a transfer tax to be paid whenever there is a real estate purchase. This tax is payable by the buyer.  Effective August 1, 2024, the amount of the transfer tax will generally be 1.47% of the purchase price. The tax is discounted to one-half of one percent for the first $200,000.00 of the purchase price if the property will be the purchaser's primary residence. For residential properties that will not serve as the principal residence of the buyer, the rate will be 3.62% of the purchase price.  There are several transfer tax exemptions or reductions for special circumstances which our office can assist with.

Real estate tax attorney - Colchester, Essex, Milton, Burlington, White River Junction, Hartford, Quechee, Woodstock, VT — Peet Law Group

There are several tax issues to address when conveying Vermont real estate. These include property taxes, transfer tax, land gains tax, and nonresident withholding. The attorneys at Peet Law Group are equipped to help our clients navigate real estate-related related taxes.

Real Estate Agent — Burlington, VT — Peet Law Group

Property Taxes:

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. Suppose the seller is to receive an income-sensitive Property Tax Rebate as a credit on the tax bill. In that case, 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.


Transfer Tax:

The State of Vermont requires a transfer tax to be paid whenever there is a real estate purchase. 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 purchaser's primary residence. 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 purpose of Vermont Land Gains Tax is to discourage short-term land speculation.  The tax is assessed on properties that have been subdivided and held less than six years. The tax applies only to the value of land and does not include the value of improvements. The tax rate is quite high when land is held for a short period and sold with a large gain.  There are several possible exemptions to the tax which you should discuss with your attorney. When the tax is due, the buyer is required to withhold and remit to the State 10% of the seller's proceeds unless the seller obtains a Tax Commissioner's Certificate in advance of closing showing a reduced or eliminated withholding requirement.

 

Nonresident Withholding:

If the seller is not a resident of Vermont, a withholding tax on the proceeds from the sale of the 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 a half percent (2.5%) of the sale price. The withholding amount 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.


Foreign Investment in Real Property Tax Act (FIRPTA):

The Foreign Investment in Real Property Tax Act (FIRPTA) imposes a withholding tax on foreign persons selling U.S. real property interests. FIRPTA's primary purpose is to ensure the collection of taxes on gains realized by foreign sellers from the sale of U.S. real estate. Under FIRPTA, the buyer of a U.S. real property interest from a foreign seller is generally required to withhold 15% of the amount realized on the transaction. This withholding serves as a deposit or prepayment of the taxes that the foreign seller may owe to the U.S. government. The actual tax liability of the seller may be more or less than the amount withheld, and the seller can file a U.S. tax return to settle the difference. FIRPTA applies to a broad range of real property transactions, including sales of residential, commercial, and other types of properties. Compliance with FIRPTA is crucial for both buyers and sellers to avoid penalties and interest charges.


In need of an experienced real estate attorney? Call the Peet Law Group at (802) 860-4767 today.