Vermont
A 1031 exchange in Vermont starts with a Commissioner's Certificate request.
Vermont makes the buyer withhold 2.5% from a nonresident seller, and the Department of Taxes names a 1031 exchange as a reason to request a Commissioner's Certificate, which is filed online with proof of basis.
If you do not live in Vermont and you sell Vermont real estate, the buyer has to withhold 2.5% of the sale price and send it to the Department of Taxes, unless you hold a Commissioner's Certificate. The Department lists "Transaction is part of a §1031 exchange agreement" as a reason to request one. Requests are made online through myVTax and need proof of your basis, so allow time before closing.
onezero3one acts as qualified intermediary for exchanges of Vermont property, subject to a review of each file before an exchange agreement is signed. We work with your closing agent and tax advisor; we do not give tax or legal advice.
What is specific to this state
The federal rules in IRC §1031 decide whether an exchange qualifies. The items below are state requirements that sit alongside them at closing or on the return. Each links to the official source it was checked against; confirm the current version with your closing agent and tax advisor before relying on it.
| Issue | What applies | Usually handled by | Source |
|---|---|---|---|
| Tax at closing for sellers | If the seller is a nonresident of Vermont, the buyer withholds 2.5% of the sale price and files Form RW-171 with payment, with a Schedule A for each seller, within 30 days of the transfer, unless a Commissioner's Certificate was obtained. The buyer is personally liable if it fails to withhold. If any seller is a nonresident, the whole sale is subject to withholding unless the sellers obtained a certificate exempting the Vermont residents. Nonresident sellers of Vermont real property (a partnership, LLC or S corporation is nonresident if nonresidents hold the controlling interest). | Seller, with the closing agent filing at recording | Vermont Department of Taxes, Real Estate Withholding (web page) and Form RW-171 (Rev. 10/14), FS-1177 (rev. June 2026) Checked September 30, 2026 |
| Certificate for an exchange | A Commissioner's Certificate reduces or exempts the seller from withholding, and the Department's published reasons to request one include that the transaction is part of a section 1031 exchange agreement. Form RW-171 describes the certificate as obtained in advance of the sale. Nonresident sellers relinquishing Vermont real property in a 1031 exchange. | Seller requests through myVTax; closing agent applies the certificate number on RW-171 | Vermont Department of Taxes, Commissioner's Certificate (web page) Checked September 30, 2026 |
| What the certificate request needs | Requests are made online through myVTax. The seller must be in good standing with the Department, and must provide proof of basis (for example the PTT-172 or settlement statement from the original purchase), capital improvement detail, depreciation information for rental property, any prior deferred gain from a 1031 exchange, valid SSNs or FEINs for all parties, and the worksheets in the application. Sellers requesting a Commissioner's Certificate, including 1031 sellers. | Seller or the seller's representative | Vermont Department of Taxes, Commissioner Certificate Requirements (web page) Checked September 30, 2026 |
| Return still required | A Vermont income tax return must be filed within the time prescribed for filing the federal return even if a Commissioner's Certificate was obtained. Any tax above the withholding is paid with the return, and excess withholding is refunded. Vermont taxable income for individuals starts from federal adjusted gross income, and no Vermont-specific clawback or annual replacement-property reporting rule was identified. Nonresident sellers of Vermont real property. | Your tax advisor | Vermont Department of Taxes, Real Estate Withholding (web page); 32 V.S.A. 5811(21) Checked September 30, 2026 |
| Land gains tax withholding | Vermont's Land Gains Tax applies to the gain from a sale or exchange of Vermont land purchased and subdivided by the seller fewer than six years before. Absent a Commissioner's Certificate the buyer withholds 10% of the consideration attributable to land, and the buyer must file Form LGT-177 even if no withholding or tax is due. Sellers who bought and subdivided Vermont land less than six years before the sale or exchange. | Buyer files LGT-177; seller files LGT-178 unless an exemption is cited | Vermont Department of Taxes, Land Gains Tax (web page) Checked September 30, 2026 |
| Property transfer tax on the deed | Vermont's property transfer tax is 1.25% of the value of the property transferred (minimum $1), and 3.4% for residential property fit for year-round habitation that will not be the buyer's principal residence. Exchanges are not exempt. Every Vermont deed, including both deeds in an exchange. | Closing agent, under the contract's allocation | 32 V.S.A. 9602, 9602a, 9604, 9605 Checked September 30, 2026 |
| Transfer tax and exchanges | The 28 exemptions in 32 V.S.A. 9603 (government transfers, family transfers without consideration, mere change of form of ownership, certain entity formations and dissolutions where no gain or loss is recognized, and similar) do not include like-kind exchanges. Sale and purchase deeds in a Vermont exchange. | Closing agent, under the contract's allocation | 32 V.S.A. 9603 Exemptions Checked September 30, 2026 |
Withholding on nonresident sellers
Vermont taxes the gain from a sale of Vermont real estate whether the seller is a resident, part-year resident or nonresident. If the seller is a nonresident, the buyer withholds 2.5% of the consideration and files Form RW-171, with a Schedule A for each seller, within 30 days of the transfer. The buyer files with the Department of Taxes, not the town clerk, and is personally liable for the amount if it fails to withhold.
A nonresident individual is one domiciled outside Vermont at closing. A partnership, LLC or S corporation is treated as a nonresident if nonresidents hold the controlling interest. If any seller is a nonresident, the whole sale is subject to withholding unless the sellers have obtained a Commissioner's Certificate exempting the Vermont residents.
The Commissioner's Certificate for an exchange
A Commissioner's Certificate can reduce or eliminate the withholding. The Department's list of reasons to request one includes a loss on the sale, a §121 exclusion, a tax-exempt seller, and a transaction that is part of a §1031 exchange agreement. The form RW-171 instructions describe the certificate as obtained in advance of the sale.
All requests go through myVTax. The seller must meet these requirements first:
- The seller must be in good standing with the Department, meaning all returns filed and all taxes due paid, except those on appeal.
- Proof of basis: for a purchased property, a copy of the Form PTT-172 from the original transfer or the settlement statement, plus a breakdown of capital improvements if claimed, and depreciation information for rental property.
- If an earlier 1031 exchange deferred gain into the property being sold, the deferred amount goes in the "Has there been any prior deferred gain?" box.
- Social Security or federal employer identification numbers for all parties, and the worksheets in the myVTax application.
When a certificate is issued for a reduced amount, the buyer enters the certificate number on the RW-171 and attaches a copy. Whether or not a certificate is obtained, the seller must file a Vermont income tax return by the federal due date. Any tax above what was withheld is paid with the return, and excess withholding is refunded.
Land gains tax on recently subdivided land
Separately, Vermont's land gains tax applies to the gain from a sale or exchange of Vermont land that the seller purchased and subdivided fewer than six years before the sale. If it applies, the buyer withholds 10% of the purchase price attributable to land unless a certificate shows a different amount, and the buyer must file Form LGT-177 even if no tax is due; the seller files Form LGT-178 unless an exemption is cited. If you did not both buy and subdivide the land within six years of the sale, the tax should not apply, but ask your closing attorney to confirm.
Property transfer tax on each deed
Vermont's property transfer tax is 1.25% of the value of the property transferred, or $1, whichever is greater, with lower rates for a buyer's principal residence. Residential property that is fit for year-round habitation and will not be the buyer's principal residence is taxed at 3.4%, which can apply to a rental bought as replacement property. Ask your closing agent which rate and any surcharges apply, and who pays under your contract.
The exemption list in 32 V.S.A. §9603 covers items such as transfers to the government, between family members without consideration, to effect a mere change of form of ownership, and certain entity formations and dissolutions. Like-kind exchanges are not on it, so expect the tax on both your sale deed and your purchase deed.
State income tax
For individuals, Vermont taxable income starts from federal adjusted gross income, so gain deferred under §1031 is not recognized for Vermont either, subject to the modifications in the statute. We did not identify a clawback or annual reporting rule for replacement property; confirm with your tax advisor.
Timeline for a nonresident's Vermont sale
- Well before closing: sign the exchange agreement and submit the certificate request in myVTax with proof of basis.
- At closing: the certificate goes to the closing attorney; the contract is assigned and the buyer notified; proceeds go to the intermediary.
- Within 30 days of transfer: the buyer files the RW-171 and the property transfer tax is due.
- Day 45 and day 180: identification and purchase, as in any exchange. The deadline calculator gives both dates.
Questions Vermont sellers ask
I live in New York and am selling a Vermont rental. Will Vermont withhold if I am doing a 1031?
Yes, 2.5% of the sale price, unless you hold a Commissioner's Certificate before closing. The Department lists a 1031 exchange as a reason to request one.
Do I still file a Vermont return if I get a certificate?
Yes. The Department says a Vermont income tax return must be filed within the federal filing time even if a certificate was obtained.
Is the property transfer tax waived for an exchange?
No exchange exemption appears in the statute, so each deed is taxed.
Related
Sources
- Vermont Department of Taxes, Real Estate Withholding (checked September 30, 2026)
- Vermont Department of Taxes, Commissioner's Certificate (checked September 30, 2026)
- Vermont Department of Taxes, Commissioner Certificate Requirements (checked September 30, 2026)
- Form RW-171 Vermont Withholding Tax Return for Transfer of Real Property (Rev. 10/14) (checked September 30, 2026)
- Vermont Department of Taxes, FS-1177 Real Estate Withholding (rev. June 2026) (checked September 30, 2026)
- Vermont Department of Taxes, Land Gains Tax (checked September 30, 2026)
- 32 V.S.A. 9602, 9602a, 9603, 9604, 9605 (property transfer tax) (checked September 30, 2026)
- 32 V.S.A. 5811 Definitions (checked September 30, 2026)
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