As with any purchase, when you buy a piece of real estate in Vermont, you must pay taxes on it. How much you have to pay depends on several factors. What you may not know is that the seller also has to pay a number of taxes when they sell a piece of property.
The main tax the buyer must pay under law for purchasing real estate in Vermont is the property transfer tax. This tax must be paid when the transfer of ownership is filed. Currently, the tax is 1.25 per cent of the full sale price; however, there are two lower rates for certain types of property. If the buyer is purchasing the piece of property with the intent of making it his/her primary residence, the tax is only 0.5 per cent up to $100,000. Over that, the remaining amount is taxed at the full 1.25 per cent.
The second special rate applies if the property is a working farm or if it is registered with the Vermont current use program (a program aimed at reducing taxes for farmland or forest lands). If either of these cases applies, the entire cost of the property is taxed at 0.5 per cent. However, if the land is used for another activity within three years or if the farm ceases to produce agricultural goods within six years, the buyer will be required to pay an additional 0.5 per cent on the sell price.
The seller is responsible for paying the Vermont tax on capital gains. This tax applies even if the buyer is not a resident of Vermont. The actual tax the seller must pay is figured according to the federal guidelines for selling real estate. However, if an individual is selling their primary resident (defined as the place they have lived for at least two of the previous five years), then there are several tax exclusions that can be applied.
The amount of time the seller owned the land is also taken into account. For land owned for a year or less, the standard Vermont tax is applied. However, if an individual has owned the land for over a year, they may qualify for a 40 per cent reduction in taxes. For those who do not live in Vermont, the tax is figured as it would be if the seller's income was being taxed in Vermont.