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There are several tax issues to address with the sale of
your property. These include local property taxes, transfer
tax, land gains tax, nonresident withholding and federal
income tax reporting.
Property Taxes
At the time of closing, an adjustment is made for property
taxes so that the buyer and seller are only paying property
tax for the time that they actually own the property. Depending
on when taxes are due and when the closing takes place,
the buyer or seller may receive a credit at the closing
for property taxes that are paid covering a period of time
that the opposite party owned the property. This can be
a somewhat complicated and confusing calculation. We can
review and explain the tax adjustment to be sure that you
are paying no more than your fair share of the property
taxes.
Transfer Tax
The State of Vermont requires a transfer tax be paid whenever
there is a sale of real estate. This tax is payable by
the buyer. However, it is the obligation of the seller
to provide the completed transfer tax return. Our office
will prepare this tax form and deliver it to the closing
with the Warranty Deed.
Vermont Land Gains Tax
The sale of property which is not your principal residence
or will not become the principal residence of the buyer
may be subject to a special Vermont Land Gains Tax ("VLGT').
You must be concerned with this tax if you have not owned
the property at least six years. The VLGT is not the same
as your federal or state income tax. The tax is computed
based on a matrix taking into account the profit you are
making from the sale of the land (the VLGT is not imposed
on the profits from the sale of the buildings) and the
amount of time you have owned the property. This tax may
also be incurred if your property exceeds ten acres in
size, even though it was used as a primary residence. We
will prepare the necessary forms and do the computations.
We will be in touch with you to obtain the information
we need to compute the tax and let you know our estimate
of the amount.
Nonresident Withholding
If you are not a resident of the State of Vermont and/or
the United States, a special withholding tax on the proceeds
from the sale of property is imposed. The State withholding
rate is a maximum of two and one-half percent (2.5%) of
the total sale price of the property. The Federal withholding
rate is a maximum of ten percent (10%) of the sale price.
The applicable regulations provide that the amount of the
withholding may be reduced if you can show the government
that your tax liability is less than the amount of the
withholding. To do that we must prepare and file an application
for both the State and Federal withholding. If the amount
that will be withheld is not substantially greater than
the withholding, it may not be worth the expense to you
to seek the reduced withholding. The funds that are withheld
are either applied to your income tax liability from the
sale of the property or returned to you when you file your
income tax return.
Federal Income Tax Reporting
At the closing, you will be asked to sign an IRS W-9 request
for your taxpayer identification number. You will then
be given a copy of the 1009-S form that is sent to the
IRS to report your proceeds from the sale of your property.
If you used your property as your primary residence, it
is likely that no federal tax will be due. However, there
are circumstances where tax will be due particularly if
you used the property for any commercial or rental purposes.
Please consult a federal income tax professional to determine
what tax may be due from the sale of your property.
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