Published July 8, 2024
Vermont Transfer Tax Changes: What Buyers and Sellers Need to Know
Upcoming Changes to Vermont’s Transfer Tax: What Buyers and Sellers Need to Know
As of August 1, 2024, Vermont will see some pretty significant adjustments to the state's Transfer Tax. Whether you're buying or selling property, understanding these changes is crucial to making informed decisions. Here is everything you need to know about the upcoming changes:
What is the Vermont Transfer Tax?
The Vermont Transfer Tax is a tax levied on the transfer of property ownership within the state. Paid by the buyer at the time of transfer, this tax is calculated based on the property’s sale price and supports various state and local programs, including affordable housing initiatives and land conservation efforts.
What’s Changing?
After August 1st, the following changes will take effect:
Tax Increases for Non-Principal Residences
The most significant change will be for properties that do not serve as the buyer’s primary residence. The transfer tax rate for these purchases will increase from the current rate of 1.25% to a new rate of 3.4%. Additionally, these transactions are subject to the increased Clean Water Surcharge (up to 0.22% from 0.20%), bringing the total tax rate to 3.62%! This rate applies to the entire purchase price of residential property that is fit for year-round use and will not be used as a long-term rental (rented for more than 30 consecutive days) - so this will apply to your second homes and Airbnb type properties.
Benefits for Primary Residences
For properties that are going to be used as the buyer’s principal residence, there have been some changes that will actually reduce the transfer tax associated with these transactions:
The Special Tax Rate will remain the same at 0.5%, however, instead of the first $100,000 being eligible for this Special Rate, the first $200,000 of a property’s value will be taxed at the 0.5% rate.
For every dollar above $200,000, purchasers will pay the same 1.25% rate that they have been - a total of 1.47%, including the Clean Water Surcharge.
However, if the purchaser secures a purchase money mortgage partially funded by a homeland grant through the Vermont Housing and Conservation Trust Fund, or if financing is obtained through the Vermont Housing and Finance Agency (VHFA) or the U.S. Department of Agriculture and Rural Development (RD Loans), the first $250,000 of the property's value will be exempt from the transfer tax, including the clean water surcharge. For any amount above $250,000, the rate of 1.47% applies.
Clean Water Surcharge Increase
The clean water surcharge is currently 0.2% and will increase to 0.22%. The surcharge applies only to the value of the property exceeding the new $200,000 principal residence threshold as well as the full value of all non-principal residences.
How Will This Affect Buyers?
The most noticeable effect will of course be changes to the cost of purchasing a property in Vermont, namely buyer closing costs.
For primary residences: These changes are great news as they will reduce the amount the buyer must bring with them to closing - freeing up additional funds to go towards their down payment or allowing them to keep a little more cash in their bank account.
For second homes or short-term rental properties: These new rates are not so great for transfers on these properties and you will now pay significantly more since the transfer tax will more than double with these changes. In a state where closing costs and taxes are already considered quite high compared to other states, this does have the potential to deter people from wanting to make these types of purchases here in Vermont.
For long-term rental properties or properties that are not habitable for year round use: No significant changes will be seen for these purchases, other than the 0.02% increase in the clean water surcharge.
Considerations for Sellers
Time will tell if these changes bring about any major impact as far as sellers are concerned. Since buyers pay the transfer tax there will not be any direct effect on sellers at closing. The one area where we may see sellers impacted are in the second home and short-term rental purchase markets, since as mentioned above, the significant tax increase may be enough to deter some folks from wanting to make these purchases, or they may have to take the larger closing cost amount into account when making their offer, possibly slightly reducing the amount they can pay for the property. Even if buyers have the extra cash available, it may be the principle of the issue for them and they may instead consider alternative areas that are more cost-effective to purchase their second home and short-term rental properties in.
As is always the case, change brings both challenges and opportunities! If you have questions or need more details on how these changes might impact you, reach out and let’s explore the best path forward together!
Upcoming Changes to Vermont’s Transfer Tax: What Buyers and Sellers Need to Know
As of August 1, 2024, Vermont will see some pretty significant adjustments to the state's Transfer Tax. Whether you're buying or selling property, understanding these changes is crucial to making informed decisions. Here is everything you need to know about the upcoming changes:
What is the Vermont Transfer Tax?
The Vermont Transfer Tax is a tax levied on the transfer of property ownership within the state. Paid by the buyer at the time of transfer, this tax is calculated based on the property’s sale price and supports various state and local programs, including affordable housing initiatives and land conservation efforts.
What’s Changing?
After August 1st, the following changes will take effect:
Tax Increases for Non-Principal Residences
The most significant change will be for properties that do not serve as the buyer’s primary residence. The transfer tax rate for these purchases will increase from the current rate of 1.25% to a new rate of 3.4%. Additionally, these transactions are subject to the increased Clean Water Surcharge (up to 0.22% from 0.20%), bringing the total tax rate to 3.62%! This rate applies to the entire purchase price of residential property that is fit for year-round use and will not be used as a long-term rental (rented for more than 30 consecutive days) - so this will apply to your second homes and Airbnb type properties.
Benefits for Primary Residences
For properties that are going to be used as the buyer’s principal residence, there have been some changes that will actually reduce the transfer tax associated with these transactions:
The Special Tax Rate will remain the same at 0.5%, however, instead of the first $100,000 being eligible for this Special Rate, the first $200,000 of a property’s value will be taxed at the 0.5% rate.
For every dollar above $200,000, purchasers will pay the same 1.25% rate that they have been - a total of 1.47%, including the Clean Water Surcharge.
However, if the purchaser secures a purchase money mortgage partially funded by a homeland grant through the Vermont Housing and Conservation Trust Fund, or if financing is obtained through the Vermont Housing and Finance Agency (VHFA) or the U.S. Department of Agriculture and Rural Development (RD Loans), the first $250,000 of the property's value will be exempt from the transfer tax, including the clean water surcharge. For any amount above $250,000, the rate of 1.47% applies.
Clean Water Surcharge Increase
The clean water surcharge is currently 0.2% and will increase to 0.22%. The surcharge applies only to the value of the property exceeding the new $200,000 principal residence threshold as well as the full value of all non-principal residences.
How Will This Affect Buyers?
The most noticeable effect will of course be changes to the cost of purchasing a property in Vermont, namely buyer closing costs.
For primary residences: These changes are great news as they will reduce the amount the buyer must bring with them to closing - freeing up additional funds to go towards their down payment or allowing them to keep a little more cash in their bank account.
For second homes or short-term rental properties: These new rates are not so great for transfers on these properties and you will now pay significantly more since the transfer tax will more than double with these changes. In a state where closing costs and taxes are already considered quite high compared to other states, this does have the potential to deter people from wanting to make these types of purchases here in Vermont.
For long-term rental properties or properties that are not habitable for year round use: No significant changes will be seen for these purchases, other than the 0.02% increase in the clean water surcharge.
Considerations for Sellers
Time will tell if these changes bring about any major impact as far as sellers are concerned. Since buyers pay the transfer tax there will not be any direct effect on sellers at closing. The one area where we may see sellers impacted are in the second home and short-term rental purchase markets, since as mentioned above, the significant tax increase may be enough to deter some folks from wanting to make these purchases, or they may have to take the larger closing cost amount into account when making their offer, possibly slightly reducing the amount they can pay for the property. Even if buyers have the extra cash available, it may be the principle of the issue for them and they may instead consider alternative areas that are more cost-effective to purchase their second home and short-term rental properties in.
As is always the case, change brings both challenges and opportunities! If you have questions or need more details on how these changes might impact you, reach out and let’s explore the best path forward together!
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