A 1031 exchange in Vermont lets you sell investment real estate and reinvest in like-kind property while deferring the tax on the gain. The federal rules apply the same way everywhere. Vermont has a high income tax with a partial capital gains exclusion, a modest nonresident withholding at closing, and one feature almost no other state has: a separate Land Gains Tax that a standard 1031 does not fully shelter. We act as your qualified intermediary, holding the proceeds and handling the documentation so the exchange holds from sale to closing.
Table of contents
- How much is capital gains tax on real estate in Vermont?
- The Vermont Land Gains Tax
- Vermont's nonresident withholding
- Vermont 1031 exchange rules and timeline
- 1031 exchanges across Vermont markets
- Common Vermont 1031 exchange mistakes
- Start your Vermont 1031 exchange
- Frequently asked questions
How much is capital gains tax on real estate in Vermont?
Vermont taxes the gain as ordinary income, with a top rate of 8.75%, but it allows a partial capital gains exclusion, generally the greater of a flat $5,000 or 40% of net adjusted long-term capital gains from certain assets, subject to limits. The Vermont tax sits on top of the federal tax an exchange also defers:
- Long-term capital gains at 0%, 15%, or 20%, with the 20% rate applying above $545,500 of taxable income for single filers and $613,700 for married couples filing jointly in 2026.
- The 3.8% Net Investment Income Tax above $200,000 of modified adjusted gross income for single filers, $250,000 for married couples.
- Depreciation recapture, taxed as unrecaptured Section 1250 gain at up to 25%.
- Vermont's rate of up to 8.75% on the gain, after any applicable exclusion.
Vermont conforms to Section 1031 for income tax, so a properly structured exchange defers both the federal and the Vermont income tax. The full federal framework is in our main 1031 exchange guide.
The Vermont Land Gains Tax
This is the Vermont-specific issue to plan around. In addition to income tax, Vermont imposes a Land Gains Tax on gains from the sale of certain Vermont land, separate from the income tax an exchange defers. Critically, the relief from the Land Gains Tax for like-kind exchanges is narrow: it generally exempts only an exchange of Vermont land for other Vermont land. So if you exchange Vermont land into replacement property located in another state, the Land Gains Tax can still apply even though your federal and Vermont income tax is deferred. Because the rules on what land and what holding periods are covered have changed over time, confirm the current treatment with your tax advisor before structuring an exchange that involves Vermont land, particularly one that moves out of state.
Vermont's nonresident withholding
When a nonresident sells Vermont real estate, the buyer withholds 2.5% of the sale price and reports it on Form RE-171. It is a prepayment against the Vermont income tax, not an extra tax. In a 1031 exchange a nonresident seller can request a withholding certificate and present it to the buyer before closing to avoid the withholding, supported by your intermediary's documentation.
Vermont 1031 exchange rules and timeline
The federal deadlines govern, and they are strict:
- 45-day identification. Identify replacement property in writing within 45 days of the sale.
- 180-day closing. Close within 180 days of the sale, or by your return due date including extensions, whichever is earlier.
- No constructive receipt. Proceeds go to your qualified intermediary, never to you.
- Equal or greater value and debt. Reinvest all net proceeds and match or exceed the relinquished value and debt, or the shortfall is taxable boot.
- Same taxpayer. The entity that sold must be the entity that buys.
1031 exchanges across Vermont markets
Vermont is a small market, and its exchange activity centers on Burlington and Chittenden County, the state's largest metro, with multifamily and commercial property. The ski-resort towns, including Stowe, Killington, Okemo, and Stratton, carry resort and short-term rental demand and a large share of second-home ownership, so many sellers here are nonresidents subject to the withholding. Montpelier and Rutland add further commercial activity. Vermont property tax is high, with a statewide education property tax layered on local rates, so confirm the rate for any replacement deal and weigh it against the resort income assumptions.
Common Vermont 1031 exchange mistakes
- Overlooking the Land Gains Tax on Vermont land, especially when exchanging into out-of-state property, where the income tax defers but the Land Gains Tax may not.
- Not requesting the withholding certificate before closing, so 2.5% is taken on the sale price.
- Taking receipt of the proceeds, or missing the 45-day identification window.
- Trading down or pulling cash out, which creates taxable boot.
Start your Vermont 1031 exchange
Set up your exchange before your relinquished property closes, so the withholding certificate is in place and the proceeds never reach your hands, and so any Land Gains Tax exposure is identified early. Contact our team to begin, or to talk through a specific deal.
Frequently asked questions
How much is capital gains tax on real estate in Vermont?
Vermont taxes the gain as ordinary income at up to 8.75%, with a partial capital gains exclusion, on top of federal capital gains tax.
What is the Vermont Land Gains Tax?
It is a separate Vermont tax on gains from the sale of certain Vermont land. Its like-kind exchange relief is narrow, generally covering only Vermont-land-for-Vermont-land, so an exchange of Vermont land into another state can still trigger it. Confirm the current rules with your advisor.
Is there nonresident withholding when I sell Vermont property?
Yes. The buyer withholds 2.5% of the sale price on Form RE-171. In a 1031 a nonresident can request a withholding certificate before closing to avoid it.
Do I need a qualified intermediary for a Vermont 1031 exchange?
Yes. The intermediary must hold the proceeds and facilitate the exchange. Engage one before the relinquished property closes.
This page is general information, not tax or legal advice. We act as a qualified intermediary and do not provide tax or legal advice. State and federal rules and thresholds change, and Vermont's Land Gains Tax rules have changed over time; confirm current figures and treatment with your tax advisor.
