1031 Exchange & DST Investing in Vermont
Vermont taxes top capital gains at 8.75% and conforms to federal Section 1031, so a qualifying exchange defers both state and federal tax. The state withholds 2.5% of the sales price on nonresident real estate transfers.
State tax treatment of a 1031 exchange
Vermont conforms to federal Section 1031, so a qualifying like-kind exchange defers Vermont income tax on the gain. Capital gains are taxed as ordinary income, with a top marginal rate of 8.75%, though Vermont provides a limited exclusion for certain long-term gains.
Vermont requires real estate withholding, generally 2.5% of the consideration, on sales by nonresident sellers, collected at closing unless a Commissioner's certificate reduces or waives it. Vermont does not impose a separate clawback on deferred gain.
Market snapshot
Burlington is Vermont's largest metro and the center of its investment market, with a tight housing supply, the University of Vermont, and strong multifamily demand. Limited new construction keeps rents firm and vacancy low across the Chittenden County area.
Ski-resort and vacation-rental property around Stowe, Killington, and other mountain towns anchors a significant second-home and hospitality segment. Small multifamily and mixed-use assets draw most 1031 replacement interest from long-time in-state owners.
Why 1031 & DST investors look here
- An 8.75% top state rate plus federal capital gains tax makes deferral meaningful for Vermont sellers
- Burlington-area and resort-town owners often want to exit management-intensive property
- DST and 721 structures allow diversification into larger, professionally managed assets across the country
Replacement-property options
Vermont exchanges do not require in-state replacement property. Accredited investors frequently identify DST interests, 721 UPREIT contributions, or Opportunity Zone investments in higher-growth markets elsewhere, trading a hands-on Vermont property for diversified, professionally managed real estate. These vehicles are illiquid, involve market and sponsor risk, and are available only to accredited investors.
Frequently asked questions
Does Vermont tax a 1031 exchange?
No. Vermont conforms to federal Section 1031, so a qualifying like-kind exchange defers Vermont income tax on the gain along with the federal tax.
Can I exchange Vermont property for out-of-state DSTs?
Yes. Section 1031 does not require in-state replacement property, so a Vermont property can be exchanged into DST interests holding real estate in other states, subject to accredited-investor eligibility.
How does Vermont real estate withholding affect my exchange?
Vermont generally withholds 2.5% of the sales price on nonresident transfers, but a qualifying exchange may support a Commissioner's certificate reducing or waiving the withholding if requested before closing.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
State tax treatment is general and changes frequently; this page is educational and is not tax, legal, or investment advice. Confirm current state and local rules with your own CPA and attorney. Securities offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.