Understanding Vermont’s Real Estate Withholding Tax: A Guide for Sellers
What is the Vermont Withholding Tax?
If you are selling real estate in Vermont and are not a resident of the state, you may be subject to Vermont’s Withholding Tax on Real Estate Transfers. This tax is designed to ensure that non-resident sellers pay any state taxes owed on gains from their property sales before they leave the state.
The withholding tax is collected at the time of closing and is remitted to the Vermont Department of Taxes by the buyer or their representative.
How Much is the Withholding Tax in Vermont?
As of August 1, 2024, Vermont’s withholding tax on real estate sales by non-residents is 2.5% of the total purchase price OR 6.5% of the capital gain, whichever is higher.
Key Points:
- The tax applies only to non-resident sellers (residents of Vermont are not subject to this withholding).
- If the seller believes that the tax withheld exceeds their actual tax liability, they may file for a refund when they file their Vermont income tax return.
- Certain exemptions may apply, such as sales of properties under $100,000 or sales where the seller can prove no taxable gain.
Examples:
- A non-resident seller selling a property for $400,000 would have $10,000 (2.5%) withheld at closing, assuming the taxable gain is not a factor.
- If the same seller’s capital gain is $150,000, the withholding would instead be $9,750 (6.5% of the gain) because this is lower than 2.5% of the total sale price.
How Vermont’s Withholding Tax Compares to Other Locations
Below is a comparison of Vermont’s withholding tax rate against similar taxes in other states and international locations:
| Location | Withholding Tax Rate |
| Vermont | 2.5% of sale price OR 6.5% of capital gain, whichever is higher |
| New York | 10.9% of capital gain (for non-residents) |
| California | 3.33% of sale price OR 12.3% of gain (whichever is higher) |
| Florida | No state withholding tax for real estate sales |
| Massachusetts | 5% of the gain for non-residents |
| Bahamas | 10% Stamp Duty (effectively a transfer tax on all property sales) |
Key Takeaways for Sellers
- Vermont’s withholding tax applies only to non-residents, ensuring state tax obligations are met before funds leave the state.
- The withholding is calculated as 2.5% of the sale price or 6.5% of the capital gain, whichever results in a higher amount.
- Sellers may apply for a refund if the withheld amount exceeds their actual tax liability.
- Vermont’s withholding tax is lower than states like New York and California but still represents a notable closing cost for non-resident sellers.
- Proper planning and consultation with a tax professional can help non-resident sellers manage their obligations and avoid unnecessary withholding.
If you’re selling real estate in Vermont and need guidance on withholding tax requirements, exemptions, or refunds, contact our team and we can connect you with a closing attorney.