Vermont's Land Gains Tax: A 2025 Guide for Homeowners

This article is for informational purposes only and should not be taken as legal or tax advice. Please consult a licensed professional for guidance specific to your situation.

Vermont's Land Gains Tax is designed to discourage short-term land speculation by taxing the profit from the sale of land held for less than six years. This tax is unique to Vermont and can be complex, so understanding its nuances is crucial for homeowners and landowners.

What is the Land Gains Tax?

The Land Gains Tax applies to the profit (gain) from the sale or exchange of Vermont land held by the seller for less than six years. It's important to note that this tax specifically targets land, not the structures on it. The tax rate varies based on the holding period and the amount of gain realized. For more information, visit the Vermont Department of Taxes.

Who is Subject to the Tax?

Any individual or entity selling Vermont land they've owned for less than six years may be subject to the Land Gains Tax. However, there are several exemptions and special considerations, which we'll explore below.

How is the Tax Calculated?

The tax rate is determined by two factors:

1. Holding Period: The length of time the land was held.
2. Gain as a Percentage of Basis: The profit from the sale compared to the original purchase price (adjusted basis).

The shorter the holding period and the higher the gain, the higher the tax rate. For example, land held for less than four months with a gain over 200% can be taxed at rates up to 80%. Conversely, land held between five and six years with a gain less than 100% may be taxed at a rate as low as 5%. For detailed calculations, refer to the Institute for Local Self-Reliance.

Are There Exemptions?

Yes, several exemptions can relieve sellers from the Land Gains Tax:

• Principal Residence: If the land sold includes the seller's primary residence and meets certain acreage limitations (typically up to 10 acres), it may be exempt. See more at Fitzgerald, Garrow & McCormack.
• Family Transfers: Transfers between family members, especially for agricultural purposes, may qualify for exemption.
• Nonprofit and Government Entities: Sales to certain nonprofits or government entities may be exempt.
• Gifts and Inheritances: Transfers without consideration (gifts) and inheritances are generally exempt. For specific regulations, consult the Legal Information Institute.

It's essential to consult with a tax professional to determine eligibility for exemptions.

What is the Buyer's Responsibility?

In transactions subject to the Land Gains Tax, the buyer is required to withhold 10% of the total purchase price and remit it to the Vermont Department of Taxes unless the seller provides a Commissioner's Certificate indicating that no tax is due or a reduced amount is applicable. More details are available on the Vermont Department of Taxes website.

How Do I File and Pay the Tax?

• Sellers must file Form LGT-178, the Land Gains Tax Return.
• Buyers must file Form LGT-177, the Land Gains Withholding Tax Return.

These forms can be filed electronically through Vermont's myVTax portal.

What Happens if I Don't Comply?

Failure to file the necessary forms or remit the appropriate tax can result in penalties, interest, and potential legal action. It's crucial to address Land Gains Tax obligations promptly to avoid complications.

Understanding Vermont's Land Gains Tax is vital for anyone involved in buying or selling land in the state. Given its complexity and the potential financial implications, consulting with a knowledgeable tax professional or attorney is highly recommended to navigate this tax effectively.