There are several tax issues to address with the purchase of your property. These include local property taxes, transfer tax, land gains tax and nonresident withholding.

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 Taxes
The State of Vermont requires a transfer tax be paid whenever there is a purchase 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. The amount of the transfer tax is generally one and a quarter percent of the purchase price. The tax is discounted to one half of one percent for the first $100,000.00 of the purchase price if you use the property as your primary residence.

Vermont Land Gains Tax
The sale of property which was not the seller's 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 sellers have not owned the property at least six years. The VLGT is not the same as federal or state income tax. The tax is computed based on a matrix taking into account the profit the seller is 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 the seller has owned the property. This tax may also be incurred if the property exceeds ten acres in size, even though it was used as a primary residence. This tax is payable by the seller. If the seller fails to pay the tax, it will become a lien on the property and payable by the buyer. Therefore, it is important for us to determine if the tax is owed by the seller and then deduct it from the sellers' proceeds so that we are sure the tax is paid and no lien attaches to your property.

Nonresident Withholding
If seller is 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 the seller can show the government that his/her tax liability is less than the amount of the withholding. To do that the seller must prepare and file an application for both the State and Federal withholding. The funds that are withheld are either applied to the seller's income tax liability from the sale of the property or returned to the seller when the seller files an income tax return. If the buyer fails to withhold this money from the seller's proceeds, it will become a lien on the property and become payable by the buyer. Our role will be to determine if this tax is due and make arrangement to withhold the money from the seller's proceeds at closing.

Education Taxes after Property Taxes