Vermont taxes capital gains as ordinary income — up to 8.75% — stacked on top of federal tax, so selling appreciated real estate can cost roughly ~32.5% of the gain. A 1031 exchange into a Delaware Statutory Trust lets Vermont investors defer that combined bill and trade active landlording for passive institutional real estate.
~32.5%Est. combined tax if you sell
8.75%Top state rate on gains
5.0–7.0% (illustrative)Illustrative cap rates
How Vermont taxes a property sale
State treatment. Taxed as ordinary income — up to 8.75%. Vermont excludes up to 40% of adjusted net capital gains (or a flat amount), lowering the effective rate.
Nonresident withholding. Vermont may require nonresident withholding at closing; a qualifying 1031 exchange generally defers it. Confirm specifics with your closing agent.
Does Vermont conform to Section 1031?
Yes — a qualifying exchange defers state tax alongside federal.
Vermont conforms to IRC §1031, so a qualifying exchange defers Vermont tax as well as federal tax. Vermont excludes up to 40% of adjusted net capital gains (or a flat amount), lowering the effective rate.
Passive replacement property with a DST
Many Vermont owners use a Delaware Statutory Trust as replacement property — institutional real estate, professionally managed, that qualifies for 1031 treatment and can absorb both the equity and the debt from the sale.
Vermont taxes capital gains as ordinary income, up to 8.75%, with no separate long-term rate. Combined with the federal 20% rate and the 3.8% net investment income tax, a high-bracket Vermont seller can face roughly ~32.5% on a real estate gain. Vermont excludes up to 40% of adjusted net capital gains (or a flat amount), lowering the effective rate.
Does Vermont recognize 1031 exchanges?
Yes. Vermont conforms to IRC §1031, so a properly structured exchange defers Vermont tax as well as federal tax.
Why use a 1031 exchange in Vermont?
To defer the tax on a large gain (up to about ~32.5% combined) and move from active landlording into passive, professionally managed real estate while keeping your full equity invested. These are Regulation D offerings for accredited investors.