1031 Exchange in Vermont

By Skyline Capital Investments · Updated October 26, 2026 · 7 min read

Does Vermont recognize 1031 exchanges?

Yes. Vermont adopts federal income tax law as in effect on December 31, 2025 (32 V.S.A. section 5824), and its income tax starts from federal adjusted gross income. A Vermont 1031 exchange that defers gain on the federal return therefore defers it on the Vermont return as well.

Vermont adds no deadlines or forms of its own for the exchange itself. The work at the state level is mostly at closing, where withholding and, in some cases, the land gains tax come into play.

Federal rules that apply in Vermont

The federal timeline controls. You have 45 days from the sale to identify replacement property in writing and 180 days, or your return due date if earlier, to close. Both properties must be real property held for investment or business use, and a qualified intermediary must hold the proceeds.

Buy at equal or greater value and reinvest all of the net cash to defer the full gain. Cash you keep and debt you do not replace are boot, taxed by the IRS and by Vermont. The 1031 exchange rules page sets out identification and boot in full, and the main 1031 exchange guide walks through the process.

Vermont withholding at closing and how an exchange affects it

When a nonresident sells or exchanges Vermont real property, the buyer must withhold 2.5% of the price and send it with Form RW-171 within 30 days (32 V.S.A. section 5847). The statute covers a “sale or exchange,” so an exchange alone does not remove the requirement, and the Department of Taxes’ real estate withholding page does not list an exchange exemption.

The route for an exchanging seller is a Commissioner’s certificate. Under the statute, no withholding is required if the Commissioner certifies that no tax is due on the gain, or that the tax is paid or adequately secured, and on request the Commissioner can certify a lower amount. A seller in a full exchange who expects no recognized gain should apply before closing, with the exchange agreement in hand.

• Residents avoid withholding by certifying Vermont residency to the buyer.
• A partnership, LLC or S corporation is a nonresident if nonresidents hold its controlling interest.
• If any seller on the deed is a nonresident, the department treats the whole sale as subject to withholding unless a certificate is obtained.
• Withholding is a credit on the seller’s Vermont return, and any excess is refunded after filing.

When the seller is an LLC or partnership

Vermont looks at who controls the entity. The Department of Taxes treats a partnership, LLC or S corporation as a nonresident if nonresidents hold its controlling interest, and in that case the buyer withholds 2.5% of the full price unless the entity has a certificate. With co-owners on a deed, the department generally splits the withholding credit in proportion to each seller’s share of the proceeds.

For the exchange, the entity that sells must be the one that buys the replacement. If one partner wants cash and the others want to exchange, sort out the ownership with your CPA and attorney well before the sale, not at the closing table.

The Vermont land gains tax and exchanges

Vermont taxes the gain on “the sale or exchange of land” that the seller bought and subdivided within the previous six years, under 32 V.S.A. chapter 236. The statute does not mention a deferral for like-kind exchanges, so a 1031 exchange does not by itself take land out of this tax.

For most apartment owners, it never applies. Buildings and other structures are excluded from the definition of land, and land held six years or more is outside the tax. It can matter if you recently split off a lot or are exchanging land you subdivided. In that case, the buyer withholds 10% of the consideration unless you pay the tax in advance or get a Commissioner’s certificate, and returns are due within 30 days.

Does Vermont regulate qualified intermediaries?

No. Vermont is not one of the nine states with a law regulating exchange facilitators. Those states are California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia and Washington. A Vermont seller has no state license or bond requirement to rely on, so the protection depends on the intermediary you choose and the contract you sign.

• Ask for proof of a fidelity bond and errors and omissions coverage, and the amounts.
• Ask whether your funds go into a separate account in your name or a pooled account, and who must sign to move them.
• Ask for written statements of your account balance.
• Check how long the firm has handled exchanges and whether it has worked Vermont closings.
• Remember that your intermediary cannot be your agent from the past two years, such as your attorney, CPA, employee or broker.

Does Vermont have a 1031 clawback?

We found no Vermont statute that requires annual filings or tracks deferred Vermont gain when you exchange into another state, unlike the rules in California, Massachusetts, Montana and Oregon. The deferred gain stays deferred until a later taxable sale, and which states can tax it then is a question to settle with your CPA when you plan the exit.

Exchange or take the Vermont 40% exclusion?

This is a real choice in Vermont. On an outright sale, Vermont lets you exclude 40% of the long-term gain on a building held more than three years, up to $350,000, under 32 V.S.A. section 5811. That exclusion is permanent. An exchange defers the whole gain, but it is a postponement, and the exclusion on a later sale would be figured then, under whatever rules apply.

For a seller who wants to stay invested in real estate, the federal deferral usually dominates, since federal tax on a large gain is several times the Vermont tax. For an owner near the end of a long hold who wants cash, the Vermont exclusion narrows the gap between selling and exchanging. Run both cases with your CPA before you commit to an exchange.

Common 1031 exchange paths for Vermont owners

Vermont to Vermont is the simplest for a resident, who can certify residency at closing and avoid withholding altogether. A typical move is from several small buildings in Rutland or St. Albans into one larger property in Chittenden County.

Vermont to out of state is common for owners who want a larger market or lower property taxes, since Vermont’s 1.51% average effective rate is among the highest in the country (Tax Foundation 2026). No Vermont tracking filing follows you, but a nonresident seller should apply for a Commissioner’s certificate early.

Out of state into Vermont works like any federal exchange. Budget for Vermont’s property transfer tax on the replacement, generally 1.25% plus a 0.22% clean water surcharge on a rental building.

Worked example: a nonresident’s Vermont exchange

An owner living in Connecticut sells a 12-unit building in Rutland for $1,800,000. After $90,000 of selling costs and with an adjusted basis of $600,000, the gain is $1,110,000. The $850,000 loan is repaid, the owner takes $80,000 in cash, and the intermediary receives $780,000, which goes with a new $1,120,000 loan into a $1,900,000 replacement.

The $80,000 is boot, so $80,000 of gain is recognized now and $1,030,000 is deferred. Figured at Vermont’s 8.75% top rate before any capital gains exclusion, the Vermont tax on the boot is about $7,000, and the Vermont tax on the deferred gain would be up to about $90,125.

Without a certificate, the buyer withholds $45,000, which is 2.5% of $1,800,000. Because the owner’s Vermont tax on the recognized gain is only about $7,000, the owner can ask the Commissioner, before closing, to certify a lower withholding amount. If granted, much less cash is tied up until the owner files a Vermont nonresident return. The land gains tax does not apply, because the owner has held the parcel for well over six years.

Timeline tips for a Vermont exchange

• Sign the exchange agreement and assign the sale contract before closing.
• If you are a nonresident, request a Commissioner’s certificate as soon as the price is agreed.
• Confirm whether any land in the sale was bought and subdivided within six years, so the land gains return is handled.
• Get the intermediary’s bond, insurance and account details in writing, since Vermont law does not require them.
• If you sell late in the year, file an extension so your return due date does not cut the 180 days short.

Selling a Vermont apartment building as part of an exchange

Skyline buys apartment buildings with five or more units in Vermont. We buy directly, close on your timeline, and can work inside 1031 deadlines. We work with your intermediary on the contract assignment and can set a closing date that leaves room to get a withholding certificate and line up a replacement.

For the tax on an outright sale, including the 40% exclusion, see Vermont capital gains tax on real estate. The 1031 exchange calculator runs the federal side with your own numbers.