What to Know About Vermont’s Property Transfer Tax Changes

On August 1, 2024, Vermont’s property transfer tax saw drastic changes, increasing taxes for second home buyers and decreasing them for primary residence homeowners. It’s important to be informed about these changes as a Vermont homeowner, whether you’re looking to buy, sell, or stay put. 

Dive into the what, why, and how of these property transfer tax changes to learn how they will affect your real estate transactions going forward. 

What is the Property Transfer Tax?

Property transfer tax is a fee charged when a real estate title is transferred. In Vermont, it is paid by the buyer at the time of closing. 

What Changed with Vermont’s Property Transfer Tax?

Property transfer taxes changed as a part of Act 181 (H.687), approved by the Vermont Legislature in the summer of 2024. These adjustments come in three parts: 

1. Increasing the tax rate for second homes, 
2. Lowering the tax rates for primary residences,
3. Adding clean water surcharges. 

Property Transfer Tax Rates for Second Homes

Formerly, the property transfer tax rates for second homes was 1.45%, increasing to 3.62% with the approval of this Act (with the clean water surcharge). The 3.62% property transfer tax applies to properties that are a non-long-term rental residence and are fit for year-round habitation.

This tax doesn’t apply to all secondary residences— properties like unimproved land, seasonal camps, commercial properties, and long-term rental properties will be taxed at 1.47%. So, investors looking for new long-term rental properties don’t have to worry about the significant tax increase.

Property Transfer Tax Rates for Primary Residences

Previously, buyers paid a rate of 0.5% on the first $100,000 of the price of the home and 1.47% on any amount above that threshold. With this Act, the threshold changed from $100,000 to $200,000, and the tax rate above that remains 1.47%. This rate also includes the clean water surcharge. 

For buyers purchasing primary residences through the Vermont Housing and Conservation Trust Fund, Vermont Housing and Finance Agency, or the U.S. Department of Agriculture and Rural Development, the first $250,000 will be exempt from the transfer tax. The 1.47% rate will apply to any amount over $250,000.

Additional Clean Water Costs

The clean water surcharge increased from 0.2% to 0.22%, applying to any properties above the $200,000 principal residence threshold. This surcharge goes towards Vermont’s Clean Water Fund, working to protect Vermont’s waterways and the wildlife and recreational opportunities that come along with them. 

Why did Vermont’s Property Transfer Tax Change?

Act 181 closely related to community resilience and biodiversity protection through land use. In addition to introducing the 3.4% transfer tax rate on second homes, Act 181 also made several changes to State housing programs, incentivizing accessibility improvements and appropriating funds for the First-Generation Homebuyer Program and other similar initiatives. 

Essentially, its purpose was to work toward solving the state’s housing crisis. It addressed many updates from Act 250, which also made recommendations to aid the housing crisis, encouraging builds in walkable and bikeable areas while encouraging use of public transportation and nearby employment. The purpose of these property transfer tax changes was to provide incentives for increased housing opportunities in Vermont, reducing costs for primary residential owners and increasing tax revenue from second homes and short-term rentals.

How will Vermont’s New Property Transfer Taxes Affect You?

These taxes are due at closing, so we recommend factoring the cost into your overall budget in order to cover them alongside your down payment and closing costs. Buyers looking for a second home will need to save a more substantial amount to pay these taxes compared to those looking for a primary residential home. Buyers should consider property transfer taxes as a negotiation tactic — in some cases, you may be able to negotiate with the seller to cover part or all of the tax.

Vermont’s new property transfer tax structure marks a significant shift in the state’s approach to housing and land use. By incentivizing primary residences and increasing tax revenue from second home purchases, the state aims to address its housing crisis and promote community stability. These changes will likely have far-reaching effects on the real estate market, altering buying patterns and property values.