Vermont
Reviewed July 2026Federal §453 conformity
Yes — Vermont starts from the federal return and taxes installment gain as payments arrive, at rates to 8.75% with a partial capital gains exclusion doing some of the softening: the greater of a flat $5,000 or 40% of the gain from qualifying assets held more than three years. The 40% path covers the kinds of assets these transactions usually involve — business real estate, farms, operating assets — while excluding publicly traded securities and certain depreciable personal property, and the exclusion is capped at $350,000. For a qualifying business or land sale, the effective top rate on the gain lands in the mid-5s; the note's interest pays full freight.
Nonresident sourcing
Gain from Vermont real estate or a business operating in Vermont — second homes and ski-country property owned from out of state being the perennial pattern — is Vermont income for sellers anywhere, and the payments keep that character. Intangible gain generally follows the seller home.
Withholding
Vermont withholds 2.5% of the full purchase price when a nonresident sells real estate — due at the transfer, computed on the whole price, which for an installment sale means withholding on money the seller hasn't received. The fix exists but only works in advance: a commissioner's certificate, applied for before closing, can reduce the withholding to match the actual gain and the installment schedule. On any Vermont installment sale by a nonresident, that application belongs on the critical path. Sellers of recently acquired land should also screen Vermont's land gains tax — a separate, narrowed regime aimed at short-held subdivided land.
Selling, then moving (residency change)
Vermont-source gain stays taxable here after a move; other gain travels with the seller, and no rule accelerates deferred gain at the border. At an 8.75% top rate the departure math is real for large streams — with the usual standard: genuine, documented, and before the sale.
Pass-through entity (PTE) tax election
Vermont has no PTE election — with Maine's regime now live, Vermont stands with Delaware, North Dakota, and Pennsylvania as the last income-tax states without the SALT workaround. A bill passed the Senate in 2023 but died, and nothing is currently pending. For Vermont-source sale gain, the federal deduction path doesn't exist; for Vermont residents bearing other states' PTE taxes, confirm the resident-credit treatment before relying on it.
Estate and IRD
Vermont's estate tax starts at $5 million with a flat 16% rate above it and no portability between spouses — so a couple's combined exemptions require planning to use, not paperwork to claim. The unpaid note counts in the estate at its value, and heirs still owe income tax as payments arrive. For estates in range, the note's presence is often what puts them there.
Planning notes
Vermont's list: put the withholding-reduction certificate on the deal timeline before closing — it's the difference between withholding matched to the schedule and 2.5% of the whole price out the door on day one; confirm the 40% exclusion's coverage of the assets being sold; remember there's no PTE election to reach for; and for estates near $5 million, plan for the no-portability rule while both spouses are living.
Vermont withholds 2.5% of the full purchase price at transfer, even when the seller receives only a down payment. The commissioner's certificate can align withholding with the actual gain and the installment schedule, but only if applied for before closing. Put it on the critical path with the purchase agreement.
Vermont's estate tax exempts $5 million and taxes the excess at a flat 16% — but a deceased spouse's unused exemption doesn't carry over. Couples holding a large note need credit-shelter structures in place while both are living, or half the shelter dies with the first spouse.
Educational information, current as of the July 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
← Back to State Tax Center