Vermont capital gains tax on real estate is ordinary income tax at up to 8.75%, softened by an exclusion of 40% of qualifying gain on property held more than three years, and followed by a separate land gains tax that no 1031 exchange avoids. A 1031 exchange in Vermont defers the income tax on both the state and federal side. It does not defer the land gains tax, the property transfer tax or, for nonresidents, the need to deal with 2.5% withholding before closing.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Ordinary income rates of 3.35%, 6.6%, 7.6% and 8.75% |
|---|---|
| Long-term capital gains treatment | Deduct $5,000 or 40% of adjusted net capital gain on assets held over 3 years (not homes), capped at 40% of federal taxable income or $350,000 |
| Nonresident withholding at closing | Buyer withholds 2.5% of the price |
| Withholding form | Form RW-171, filed by the buyer within 30 days; seller may request a Commissioner's Certificate to reduce or eliminate it |
| Transfer or conveyance tax (a 1031 does not defer it) | Property transfer tax paid by the buyer: 1.25% general rate, 3.4% on certain second homes, plus a 0.22% clean water surcharge |
| Clawback on out-of-state replacement property | No annual clawback form |
| Conforms to Section 1031 | Yes for income tax; no like-kind exemption in the land gains tax |
| Land gains tax | 5% to 80% on gain from land bought and subdivided within 6 years |
Table of contents
- How much is capital gains tax on real estate in Vermont?
- Vermont tax on a $300,000 gain: worked example
- The Vermont land gains tax and 1031 exchanges
- Vermont nonresident withholding
- Vermont property transfer tax
- Conformity and clawback
- Moving into or out of Vermont
- Where 1031 exchanges happen in Vermont
- Federal 1031 rules
- Common Vermont 1031 exchange mistakes
- Start your Vermont 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Vermont?
Vermont adds your gain to other income and taxes it through its four brackets. The top rate of 8.75% applies to joint taxable income above $237,950 under the statute's base table, a figure indexed every year for inflation.
What makes Vermont different is the capital gains deduction under 32 V.S.A. section 5811. You take the larger of two options:
- $5,000 of adjusted net capital gain, or
- 40% of adjusted net capital gain from assets held more than three years.
The 40% option excludes real estate used as your primary or nonprimary home, depreciable personal property other than farm and timber property, and publicly traded securities. Rental and commercial buildings you do not live in generally qualify. The deduction cannot exceed 40% of federal taxable income or $350,000. Because "adjusted net capital gain" follows the federal definition in 26 U.S.C. section 1(h), unrecaptured §1250 depreciation gain is not part of it, so depreciation is taxed in full at Vermont's ordinary rates. Estimate that piece with the depreciation recapture calculator.
Vermont tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on a rental held more than three years, $100,000 of it unrecaptured §1250 depreciation, married filing jointly, already in the top federal and top Vermont bracket, and the 40% of federal taxable income cap not binding.
| Tax | Math | Amount |
|---|---|---|
| Unrecaptured §1250 gain (depreciation) | 25% x $100,000 | $25,000 |
| Remaining long-term gain | 20% x $200,000 | $40,000 |
| Net investment income tax | 3.8% x $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Vermont deduction | 40% x $200,000 adjusted net capital gain | ($80,000) |
| Vermont income tax | 8.75% x $220,000 | $19,250 |
| Total deferred by a full 1031 | $76,400 + $19,250 | $95,650 |
Held three years or less, the deduction drops to $5,000 and the Vermont line rises to $25,813. Compare outcomes in the capital gains vs. 1031 comparison.
The Vermont land gains tax and 1031 exchanges
Vermont's land gains tax (32 V.S.A. chapter 236) is separate from income tax and is aimed at speculation. Under current law it applies to land, whether or not improved, that the seller purchased and subdivided within the six years before the sale. Buildings are not part of "land," and up to 10 acres used with the seller's principal residence are excluded. A boundary adjustment is not a subdivision.
Rates depend on how long you held the land and how large the gain is relative to basis, from 5% (held 5 to 6 years, gain under 100%) up to 80% (held under four months, gain of 200% or more). The buyer withholds 10% of the price on Form LGT-177, and the seller files Form LGT-178 within 30 days of the sale.
The statute has no like-kind exchange exemption. If you subdivide a parcel and sell lots within six years, a 1031 exchange can defer federal and Vermont income tax but the land gains tax is still due. Older guidance describing a Vermont-for-Vermont land exemption does not match the current statute.
Vermont nonresident withholding
When the seller is not a Vermont resident, 32 V.S.A. section 5847 requires the buyer to withhold 2.5% of the consideration and file Form RW-171 with payment within 30 days. The seller claims the amount as a credit on Form IN-111.
The buyer does not have to withhold if the seller provides a Commissioner's Certificate showing no tax is due, or one prescribing a reduced amount. In an exchange, apply for the certificate early, with your qualified intermediary agreement showing the gain is deferred, so the full proceeds reach the intermediary. Foreign sellers should also read FIRPTA for foreign sellers.
Vermont property transfer tax
The property transfer tax under 32 V.S.A. section 9602 is imposed on the buyer. The general rate is 1.25%. Principal residences pay 0.5% on the first $200,000 and 1.25% above. Residential property fit for year-round use that will not be the buyer's principal residence and will not require a landlord certificate is taxed at 3.4%. A clean water surcharge of 0.22% is added, with the principal residence portion under $200,000 exempt.
A 1031 does not defer transfer tax. Sellers usually do not pay it, but exchangers buying Vermont replacement property do. A $1 million commercial building costs about $14,700 in tax and surcharge; the same price for a ski house kept for family use could cost about $36,200.
Conformity and clawback
Vermont starts from federal income, so gain deferred under Section 1031 is deferred for Vermont income tax. Vermont does not publish an annual clawback form for out-of-state replacement property. Gain from Vermont real estate remains Vermont-source for a nonresident, so keep your Form 8824 and closing records.
Moving into or out of Vermont
Many Vermont owners are second-home buyers from New York, Massachusetts and Connecticut; they face the 2.5% withholding when they sell. Vermonters who retire often exchange into New Hampshire or Florida property to avoid state tax on the eventual sale. See also New York for the reverse move.
Where 1031 exchanges happen in Vermont
Burlington and Chittenden County lead multifamily and commercial trades. Ski markets around Stowe, Killington and Manchester generate short-term rental exchanges, and farmland and timberland trade across the state. We have no Vermont city guides yet.
Federal 1031 rules
Identify replacement property within 45 days and close within 180. A qualified intermediary holds the funds throughout. Match or exceed the value and the debt to avoid boot. Use the 45-day identification validator, the 1031 exchange calculator and our 1031 exchange guides.
Common Vermont 1031 exchange mistakes
- Assuming a 1031 covers land gains tax. It does not.
- Exchanging a property held under three years. Any boot loses the 40% deduction.
- Forgetting the Commissioner's Certificate. Without it, 2.5% of the price is withheld.
- Budgeting 1.25% on a second-home replacement. The 3.4% rate may apply.
- Treating a family ski condo as investment property. Personal use can disqualify it.
Start your Vermont 1031 exchange
Contact us before closing so the exchange agreement is ready for your certificate request. Start your exchange or book an intro call.
Frequently asked questions
How can I avoid capital gains tax on real estate in Vermont?
A 1031 exchange defers Vermont and federal income tax when you reinvest through a qualified intermediary. Holding property over three years also unlocks the 40% capital gains deduction if you do sell.
What is Vermont's capital gains tax rate on real estate?
Gains are taxed as ordinary income at up to 8.75%, after a deduction of $5,000 or 40% of adjusted net capital gain on qualifying assets held more than three years.
Does a 1031 exchange avoid the Vermont land gains tax?
No. The land gains tax has no like-kind exchange exemption. It applies to land bought and subdivided within six years, at rates from 5% to 80%.
Is there withholding when a nonresident sells Vermont property?
Yes. The buyer withholds 2.5% of the price and files Form RW-171 unless the seller provides a Commissioner's Certificate for reduced or no withholding.
Who pays Vermont property transfer tax?
The buyer. The general rate is 1.25%, some second homes pay 3.4%, and a 0.22% clean water surcharge applies. A 1031 exchange does not defer it.
Sources
- 32 V.S.A. section 5822: income tax rates
- 32 V.S.A. section 5811: capital gains deduction
- Vermont Department of Taxes: Schedule IN-153 instructions
- 32 V.S.A. chapter 236: land gains tax
- 32 V.S.A. section 10002: land gains definitions
- Vermont Department of Taxes: Form LGT-178 instructions
- Vermont Department of Taxes: Real estate withholding
- 32 V.S.A. section 5847: withholding on nonresident transfers
- 32 V.S.A. section 9602: property transfer tax
- 32 V.S.A. section 9602a: clean water surcharge
Related: New Hampshire, New York, Massachusetts, Maine and all 50 states.
General information, not tax or legal advice. Vermont law changes often; confirm with a Vermont CPA or attorney.
