Understanding Vermont’s Property Transfer Tax: A Quick Guide

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Selling your home in Vermont? One cost you’ll have to deal with is real estate transfer taxes. These taxes are imposed by the state and sometimes local governments on the transfer of property ownership from a seller to a buyer.

Our guide will help you understand how transfer taxes work in Vermont and what you can expect to pay when selling your property. We’ll cover who is responsible for paying these taxes, the different types of transfer taxes you might encounter, and any available exemptions.

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Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of Vermont area tax services or attorneys should not be considered endorsements.

What are transfer taxes?

Real estate transfer taxes are state or local taxes payable when the title to a property is transferred from one owner to another, as defined by the Federal Trade Commission. In essence, when you transfer the legal right to own your home to someone else, the government charges a tax on this transaction. This tax ensures the transfer is officially recorded and acknowledged.

The amount of transfer taxes you owe depends on your property’s location, as each state, county, and city has its own guidelines. These taxes are a significant source of revenue for local governments, helping to generate revenue for public services and infrastructure. Understanding these taxes is essential for sellers, as it helps them anticipate the costs of selling their home and ensures a smoother transaction process.

Who pays for transfer taxes?

In some states, both the buyer and the seller of a property are responsible for any local transfer tax fees that may apply. In Vermont, however, only the buyer is responsible. Essentially, whatever person or entity acquiring the property is on the hook for the state’s transfer taxes.

What are the types of transfer taxes?

Transfer taxes will vary based on county, state, or city guidelines. In Vermont, there are several different categories of possible state transfer taxes, depending on the type of transaction, the type of property, or if the property in question is subject to assistance from the Vermont Housing Finance Agency assistance or the United States Department of Agriculture.

State transfer taxes

Not Principal Residence

  • Value Taxed: All
    • 0.5% Property Transfer Tax: No
    • 1.25% Property Transfer Tax: Yes
    • 0.2% Clean Water Surcharge: Yes

Principal Residence

  • Value Taxed: $0 – $100,000
    • 0.5% Property Transfer Tax: Yes
    • 1.25% Property Transfer Tax: No
    • 0.2% Clean Water Surcharge: No
  • Marginal Value > $100,000
    • 0.5% Property Transfer Tax: No
    • 1.25% Property Transfer Tax: Yes
    • 0.2% Clean Water Surcharge: Yes

Principal Residence Purchased with VHFA or USDA Assistance

  • Value Taxed: $0 – $110,000
    • 0.5% Property Transfer Tax: No
    • 1.25% Property Transfer Tax: No
    • 0.2% Clean Water Surcharge: No
  • Value Taxed: $110,000 – $200,000
    • 0.5% Property Transfer Tax: No
    • 1.25% Property Transfer Tax: Yes
    • 0.2% Clean Water Surcharge: No
  • Marginal Value > $200,000
    • 0.5% Property Transfer Tax: No
    • 1.25% Property Transfer Tax: Yes
    • 0.2% Clean Water Surcharge: Yes

Other transfer fees

Vermont imposes a clean water surcharge on property transfers subject to the Property Transfer Tax.

Current rate: 0.2% surcharge on the full property value (except principal residences).

Combined rate: Property transfer tax rate plus surcharge totals 1.45%.

Future changes:

  • From July 1, 2027, to June 30, 2039, the Surcharge rate will decrease to 0.04%, for a total rate of 1.29%.
  • After July 1, 2039: Surcharge no longer applies.

In addition to transfer taxes, there are possible fees to consider, such as from a homeowner’s association or another local neighborhood organization. Again, as these can vary heavily based on location, it’s important to consult a professional.

If you’re selling your home for sale by owner, consulting a professional might help with some of the finer points of the process and give you a better idea of what you can expect.

Are transfer taxes deductible?

Transfer taxes, unfortunately, are not deductible on your income tax return. However, you might still be able to reduce the amount you owe in capital gains taxes. Capital gains are the profits you earn from selling your property, and these gains are taxed by the federal government, similar to those from other types of asset sales.

To lower your capital gains tax, you can treat the paid transfer taxes as part of your selling costs. According to the IRS, sellers can deduct these costs from the final sale price of their home.

Transfer tax exemptions

Some transactions in Vermont might be eligible for exemptions from transfer taxes, depending on their specific circumstances and the type of mortgage they have obtained.

Here are a few examples:

  • Mortgage loans made by the U.S. Department of Agriculture and Rural Development:
    • Exempt for the first $110,000 of the property value.
    • USDA Rural Development Direct Home Loans qualify because they are mortgages USDA has committed to make.
  • Mortgage loans purchased by the Vermont Housing and Finance Agency (VHFA):
    • Exempt for the first $110,000 of the property value.
    • VHFA-purchased mortgages qualify because they are committed to purchase from the originating lender.
  • USDA Rural Development Guaranteed Loans:
    • Not exempt.
    • USDA guarantees these loans but does not commit to make or purchase the mortgages directly.

Estimating transfer taxes for your home sale

To estimate your transfer taxes and other closing costs when selling your Vermont home, try HomeLight’s Net Proceeds Calculator. This tool provides a quick estimation of your potential earnings by factoring in various expenses like transfer taxes, agent fees, and renovation costs.

For a precise assessment of your transfer taxes and overall closing costs, it’s wise to consult a top real estate agent. These professionals can guide you through the nuances of your specific market and help you understand if transfer taxes and other expenses can be negotiated. Discussing these costs with your agent early on will ensure you have a clear financial picture and can make informed decisions throughout your home sale process.

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