Vermont Land Gains Tax - Tax on the Seller

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 Department’s 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 “builder’s 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 land’s 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 828-2550

This Information is provided by:
Vermont Property Owners Report
Vermont Property Publishing, Inc., PO Box 1564, Montpelier, VT 05601
This publication is designed to provide accurate and authoritative information on the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.