Vermont follows federal 1031 exchange rules with a 2.5% withholding requirement for non-resident sellers that can be exempted with proper documentation.
This information is for educational purposes only and is not legal or tax advice. Consult with qualified professionals regarding your specific situation.
Important regulations and tax implications for your exchange
3.35% to 8.75% (progressive)
Yes
2.5% of sale price
Varies by locality
Follows federal guidelines
• Federal Form 8824 • Vermont Form IN-309 • Non-resident withholding exemption (for non-residents)
None
Informational step-by-step guide for your 1031 exchange
You must identify potential replacement properties within 45 days of selling your relinquished property. In Vermont, consider property tax implications and local zoning regulations when identifying properties.
Work with a qualified intermediary to handle the exchange funds and documentation. Vermont has several experienced QIs who specialize in local and interstate exchanges.
If you are a non-resident seller, apply for the non-resident withholding exemption as soon as you have a signed sales agreement. This must be approved prior to closing to avoid the 2.5% withholding.
Complete the purchase of your replacement property within 180 days of selling your relinquished property. Vermont closing processes typically take 30-45 days.
Report your 1031 exchange on your federal tax return using Form 8824. Vermont residents must also report the exchange on their state income tax return, though the gain remains deferred for state tax purposes as well.
Vermont property taxes are assessed at the local level, with rates varying between municipalities. The statewide average effective property tax rate is approximately 1.90% of assessed value, which is above the national average. Vermont also has a unique system with both municipal and education property taxes.
Review local zoning regulations and development codes, which vary significantly between Vermont municipalities. Resort areas like Stowe often have additional regulations, while historic districts in Burlington and Montpelier have preservation requirements.
Vermont has strict environmental regulations that can impact property development and use. When exchanging properties in Vermont, carefully review environmental assessments, particularly for properties near lakes, rivers, or in rural areas.
Recent changes and upcoming regulations affecting 1031 exchanges
Vermont has accelerated the cleanup of old industrial sites including Brownfields to repurpose them for housing, creating potential investment opportunities in previously underutilized areas.
Vermont has introduced the Housing Infrastructure iniTiative (HIT) to address infrastructure funding gaps that have been barriers to housing development, potentially creating new investment opportunities.
Vermont continues to require 2.5% withholding for non-resident sellers but offers an exemption for 1031 exchanges. The exemption must be submitted and approved prior to the sale closing date.
Plan and track your critical exchange deadlines
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Real 1031 exchange examples from Vermont
Current market conditions and future forecasts
Strong market with median home prices around $527,500, reflecting a 1.6% month-over-month increase. The market is particularly competitive in neighborhoods near the University of Vermont and downtown.
Luxury market with median home prices around $850,000, reflecting continued strong demand. The market is particularly strong for luxury properties and vacation rentals.
Growth market with median home prices around $449,500, reflecting a 15.4% year-over-year increase. The market offers good value for investors seeking properties with strong rental potential.
Long-term appreciation analysis in Vermont
Understanding historical property appreciation patterns can help you identify areas with strong long-term growth potential for your 1031 exchange replacement property.
32.5%
65.0%
142.3%
Continued growth expected, with 7.2% year-over-year appreciation projected
38.2%
72.4%
156.8%
Strong growth expected, with 1.6% month-over-month price increases in March 2025
45.7%
85.3%
178.2%
Strong continued growth expected, particularly in the luxury segment
30.2%
58.5%
128.4%
Moderate growth expected, with 5-6% annual appreciation projected
Current rental trends and opportunities in Vermont
Understanding the rental market is crucial when selecting investment properties for your 1031 exchange. This analysis provides insights into current rental conditions across the state.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,800 - $2,500 (1BR) | 3.2% | up | 4.8% - 5.5% |
| Class B Apartments | $1,400 - $1,800 (1BR) | 2.8% | up | 5.5% - 6.2% |
| Student Housing | $900 - $1,500 (per bedroom) | 2.0% | up | 5.2% - 6.0% |
Burlington's rental market serves a diverse tenant base, including students from the University of Vermont, young professionals in the technology and healthcare sectors, and service industry workers. Approximately 40% of renters are under 35, and 25% have household incomes above $75,000.
Burlington has relatively strong tenant protections and rent stabilization measures. The city has implemented restrictions on short-term rentals, which investors should research before purchasing properties intended for this use.
Burlington's rental market is projected to see strong growth, with annual rent increases of 4-5%. The university presence, growing technology sector, and limited new construction help maintain low vacancy rates and strong rental demand.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $2,200 - $3,500 (1BR) | 4.5% | up | 4.2% - 5.0% |
| Vacation Rentals | $2,500 - $5,000 (weekly, winter) | 20% (annual average) | up | 5.0% - 6.0% |
| Year-Round Rentals | $1,800 - $2,800 (1BR) | 3.8% | up | 4.5% - 5.2% |
Stowe's rental market is heavily influenced by seasonal tourism, particularly winter ski season. The year-round rental market serves a mix of hospitality workers, remote professionals, and second-home owners. Approximately 35% of renters are under 35, and 40% have household incomes above $100,000.
Stowe has specific regulations on short-term rentals that investors should carefully research before purchasing properties intended for vacation rental use.
Stowe's rental market is projected to see continued growth, with annual rent increases of 3-4%. The strong tourism industry, limited new construction due to geographic and regulatory constraints, and growing popularity of year-round mountain living help maintain strong rental demand.
| Property Type | Avg. Rent | Vacancy Rate | Rent Trend | Cap Rate |
|---|---|---|---|---|
| Luxury Apartments | $1,200 - $1,600 (1BR) | 4.5% | up | 6.0% - 7.0% |
| Class B Apartments | $900 - $1,200 (1BR) | 3.5% | up | 6.5% - 7.5% |
| Multi-Family Homes | $1,500 - $2,200 (2BR) | 3.0% | up | 6.2% - 7.2% |
Rutland's rental market serves a diverse tenant base, including working families, young professionals, and retirees. Approximately 30% of renters are under 35, and 15% have household incomes above $60,000.
Rutland has standard landlord-tenant regulations without significant additional restrictions. The city is generally supportive of property investment and development.
Rutland's rental market is projected to see steady growth, with annual rent increases of 3-4%. The city's revitalization efforts, infrastructure improvements, and relative affordability are attracting new residents and creating strong rental demand.
Key mistakes to avoid in your 1031 exchange
Non-resident sellers face a 2.5% withholding of the sale price at closing unless they obtain an exemption, which must be applied for and approved prior to closing.
Apply for the non-resident withholding exemption as soon as you have a signed sales agreement. Work with a qualified intermediary and tax professional familiar with Vermont's requirements to ensure proper documentation and timely submission.
Many Vermont markets, particularly resort areas like Stowe, experience significant seasonal fluctuations in rental income and property values.
Develop a year-round business plan for seasonal properties, accounting for lower off-season occupancy. Consider marketing to different tenant segments (tourists in winter, remote workers in summer) to maximize occupancy.
Many areas in Vermont have limited water and wastewater infrastructure, which can impact property development potential and value.
Conduct thorough due diligence on infrastructure availability and capacity when acquiring properties, particularly in rural areas or for development purposes. Consider the impact of the state's new Housing Infrastructure Initiative (HIT) on future development potential.
Vermont has strict environmental regulations, particularly regarding wetlands, shoreland protection, and wastewater systems, which can impact property use and development.
Include environmental assessments in your due diligence process and work with professionals familiar with Vermont's environmental regulations. Consider the potential impact of Act 250 on larger development projects.
Common questions about Vermont 1031 exchanges
Vermont follows federal 1031 exchange rules but has a 2.5% withholding requirement for non-resident sellers. Non-residents can apply for an exemption for 1031 exchanges, but this must be submitted and approved prior to closing. It's recommended to start this process as soon as you have a signed sales agreement with a buyer.
Vermont has a progressive income tax system with rates ranging from 3.35% to 8.75% for tax year 2025. Capital gains are taxed at the same rate as ordinary income, though there are some exclusions for certain types of capital gains. Through a 1031 exchange, these state taxes can be deferred along with federal taxes.
Yes, you can exchange a property from any state for a property in Vermont. Section 1031 is a federal provision that allows for exchanges across state lines. This is a common practice, particularly for investors from higher-tax states like New York or Massachusetts seeking to invest in Vermont's growing market.
Vermont's real estate market varies by region. Burlington and Stowe are quite competitive, with homes in desirable neighborhoods often receiving multiple offers. However, the statewide market has become more balanced recently, with inventory increasing by 15.8% year-over-year and homes spending an average of 94 days on the market. Working with a local real estate professional with strong market knowledge is essential for identifying suitable replacement properties within the 45-day identification period.