When you’re buying or selling a home in Vermont, you can rest assured that property taxes will be involved in the process. How much are they, and who pays them? Use this guide to understand Vermont’s real estate tax laws and make the best financial decision for your situation.
Taxes can be depressing, but add in the real estate layer and your life just got more complex. Home buyers and sellers alike need to understand the ins and outs of property taxes and how they need to be reported on your next tax filing.
This guide covers some of the most common questions and information regarding real estate taxes in Vermont so you can keep yourself out of legal trouble and enjoy the biggest tax advantages.
Will You Have to Pay Taxes When You Sell Your Home in Vermont?
The good news is that sellers will not have to pay taxes on the sale of their home—for the most part. If you’ve lived in your home for at least two of the five years prior to the sale AND you receive no more than $250,000 in profit (or $500,000 if you’re married and filing jointly), then you do not have to pay taxes on those gains.
There are a few exceptions to this rule. If you haven’t owned your home and/or used the home as your primary residence of at least two of the past five years, you will not qualify for the tax break. Also, if you sold another home within the past two years and excluded the profits from your taxes, you will not have that same tax advantage for your current home sale.
How Much Are Real Estate Transfer Taxes in Vermont (and Who Pays Them)?
A real estate transfer tax (also referred to as a deed tax or stamp tax) is a tax levied by the city, county, or state when a property is transferred from one person to another. This tax is equal to a percentage of the home’s appraised value or sale price of the property in the transaction.
In Vermont, the transfer tax rate is 0.5% of the home value’s first $100,000, then 1.45% for the remaining amount. For example, a home valued at $100,000 will have $500 in transfer tax, while a home valued at $150,000 will have $1,225 in transfer tax ($100,000 at 0.5% and 50,000 at 1.45%).
If you’re using a VFHA mortgage to purchase your home, you may receive a transfer tax exemption of up to $825. With a VHFA loan, the home’s first $110,000 is exempt from transfer tax. The transfer tax rate of the home’s value from $110,000 to $200,000 is just 1.25% instead of 1.45%.
The home buyer is responsible for paying this tax and is included in the closing costs. However, homebuyers may negotiate the seller to pay some or all of this tax as part of the sale agreement. You can work with your real estate agent to determine how to ask for this benefit in your negotiations when buying a home in Vermont.
How to Calculate Property Taxes in Vermont
Vermont’s average effective property tax rate is 1.78%, which is the 8th highest in the country. However, this rate can vary by region. For example, Windsor County’s tax rate is 1.924%, which means you’ll be paying $4,810 on a $250,000 home. In Franklin County, the tax rate is significantly lower at 1.516%, which results in $3,790 in property taxes for the same home in Windsor County.
In Vermont, there are two types of property taxes: local taxes and the state education rate. The local property taxes are calculated based on the home’s value and vary from region to region.
The state determines the education tax based several factors, including the per-student spending in your local schools and the common level of appraisal (CLA) in your area. CLA is calculated by the level of appraised values compared to the actual market values.
When buying a home in Vermont, it’s essential to discuss typical property taxes with your agent. Knowing ahead of time what you may have to pay will help you assess the total cost of homeownership.
Tax Breaks for Vermont Home Buyers & Sellers
Home buyers and sellers are eager to minimize their costs, especially when it comes to taxes. Take a look at some of Vermont’s tax credits for buyers and write-offs for sellers so that each side can feel confident in the transaction:
Tax Breaks and Credits for Buyers
Though the first-time home buyer tax credit no longer exists, there are still many tax benefits and credits available to home buyers in Vermont to save money on your home purchase.
Deduct Mortgage Interest
If you itemize your taxes, you can deduct the interest on your mortgage or home equity line of credit if you used the money to make upgrades to your home. Interest can be deducted on mortgages up to $750,000 ($375,000 if you’re filing single).
IRA or Roth IRA Withdrawals
Homebuyers can make a penalty-free deduction of up to $10,000 from an IRA or Roth IRA to use as a down payment on a home.
Property Tax Exemptions
Disabled veterans living in Vermont and declare Vermont homesteads are eligible for a minimum of $10,000 in property tax exemptions.
Vermont Homestead Adjustment
Your property may qualify for a tax adjustment if you declare it a homestead in Vermont and meet eligibility requirements. The maximum adjusted amount is $8,000.
Tax Breaks and Write-Offs for Sellers
Sellers may also enjoy tax breaks and write-offs when selling a home, which could help to offset some of the expenses you incur.
Pre-Sale Repairs and Improvements
Getting your home ready to show to potential buyers can be expensive. If you make repairs or improvements, such as new appliances, paint, flooring, or fixing minor issues, you can deduct these expenses from your taxes.
If you’re active duty military and are relocating for work, you can deduct moving expenses. These expenses include but aren’t limited to moving vans, boxes, supplies, and mileage.
You may be able to deduct mortgage interest for however long you owned the home. You can deduct the interest on home debt of up to $750,000.
You can deduct property taxes of up to $10,000. If you paid some or all of your home property taxes prior to selling your home, make sure you take advantage of this deduction.
Also, keep in mind that tax responsibilities and breaks can vary from region to region. To get the biggest advantage, it’s best to work with a top-rated local real estate agent that can help guide you through the process. Your agent can also put you in touch with a certified tax professional to minimize your exposure and maximize your savings.