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Understanding Vermont's Property Transfer Tax

Every purchase and sale of real property in Vermont is potentially subject to a sales tax called the "property transfer tax."  The Buyer of the property has the burden of paying the transfer tax and the amount of the tax will be included in the Buyer's closing costs on the closing statement/HUD.

As discussed below there are categories of transfers that are exempted from payment of the transfer tax. But even when the transfer is exempt a Property Transfer Tax Return (referred to as the "PTTR") must be filed with the town clerk whenever a document (typically a deed) conveying title to a property is recorded. (No PTTR is required for documents that do not convey title such as a mortgage deed, attachment or lien.)  A basic understanding of the tax and its application to your purchase/sale is essential.

The Special Rate

Vermont's transfer tax is made up of two components: 1) a tax on "special rate property" and 2) a tax on "general rate property."  How these components apply to a particular transaction depends on the Buyer's intended use of the property. When the Buyer intends to use the property as their prinicpal residence then the first $100,000 of the purchase price is taxed at the "special rate." (In some limited circumstances the first $110,000 of the purchase prioce is taxed at the special rate.)

It is not necessary that the Buyer intends to immediately make the property their principal  residence.  As long as the Buyer certifies at closing that the property will become their principal residence within two (2) years of closing the special rate will be applied to the first $100,000 of the purchase price.  If the property does not become the Buyer's principal residence within two years a penalty will be assessed by the Vermont Department of Taxes.

Where property is enrolled in Vermont's current use property the entire fair market value of the property will be taxed at the special rate. Where the property consists of both a residence and some land in current use, the first $100,000 of the purchase price attributable to the residence plus the full fair market value of the current use portion will be taxed at the special rate.

As of the date of this article (4/2014) the special rate is .005.

Examples:

1)     Buyer pays $100,000 for a property which will become their primary residence. The transfer tax is $500. ($100,000 x .005 = $500)

2)     Buyer is purchasing a property consisting of a home and 50 acres for $200,000. (The house lot is defined by law as the home plus up to two (2) acres.) The value of the home plus the surrounding two acres is $100,000.The fair market value of the remaining 48 acres is $100,000.  The entire transaction will be taxed at the special rate ($200,000 x .005= $1,000).

The General Rate

When a property is not going to be the purchaser's principal residence (perhaps a summer home, camp, rental property, etc.) then the entire purchase price is subjected to the "tax on general rate property."  If a property will become the Buyer's principal residence but the purchase price is more than $100,000 then the amount in excess of $100,000 (or $110,000 if a VHFA/USDA financed purchase) will be taxed at the general rate.

As of the date of this article the general rate is .0125.

Examples:

1)     Buyer pays $250,000 for property that will be their principal residence. The first $100,000 is taxed at the special rate ($100,000 x .005 = $500). The remaining balance is taxed at the general rate ($250,000 - $100,000 = $150,000 x .0125 = $1,875) The total transfer tax is $2,375 ($500 + $1,875)

2)     Buyer is purchasing a summer home for $250,000. The entire amount is subject to the general rate. The total transfer tax is $3,125.

3)     Buyer is purchasing a property that will become their principal residence for $200,000. The parcel consists of a home  and 58 acres of land. The land is current use. The purchase price attributable to the home and surrounding two acres is $150,000. The remaining 48 acres in current use has a fair market value of $50,000. The first $100,000 attributable to the home plus the value of the current use land is taxed at the special rate. ($100,000 + $100,000 = $200,000 x .005 = $1,000). The remaining $50,000 of the purchase price for the home and two acres is taxed at the general rate ($50,000 x .0125 = $625). The total transfer tax is $1,625 ($1,000 + $625).

Exemptions

Vermont recognizes twenty-four (24) categories of property that are exempt from the transfer tax, including: transfers without consideration (gifts) between certain family members. transfers without consideration into trusts, certain court ordered transfers, boundary line adjustments and transfers into coroprations and LLCs (provided the entity is not already capitalized.)

Even where a transfer is exempt from the transfer tax a PTTR must still be prepared and filed with the townh land records.

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Phone: 802-424-0220
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