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A Guide for Sellers
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LEGAL GUIDE FOR SELLERS

Sellers’ Taxes

Aside from the federal income tax on the gain from the sale, there are two Vermont taxes that sellers should be aware of before entering into a contract.

  • The Withholding Tax is actually an escrow required by the State in order to insure that sellers pay the Vermont income tax on the gain. The law requires that 2½ percent of the sale price be withheld at closing and sent to the Vermont Department of Taxes. That sum remains as an escrow credited to the sellers until they file a Vermont income tax return for that year, and any taxes due are deducted from the escrowed sum. If you suspect that you may have a loss or a small gain, we can apply for a certificate from the Commissioner of Taxes on your behalf, exempting you from the full amount of the withholding. Sellers who are Vermont residents are exempt from the withholding.
  • The Land Gains Tax is designed to discourage rapid flipping of land with a high gain. The tax decreases the longer the land is held, and it phases out at six years. For example, if there is over a 200 percent gain on a piece of land held four months or less, the tax is 80 percent of the gain. The gain on land held for 5 years with a gain of 100 percent or less only incurs a 5 percent tax. Where there is a structure on the land, only the gain on the land is subject to the Land Gains Tax, and the buildings are factored out using a formula. Property which is the primary residence of either the seller or the buyer is exempt. We can run the numbers for you and tell you what to expect.

Purchase and Sale Contract

A ten percent earnest money deposit is encouraged by the real estate brokers, but there is no legal requirement for any set amount. The more that is put down, the more secure the seller feels about the buyer; the less that is put down, the less that the buyer has at risk of losing.

  • Under Vermont law the dates in the contract are strictly construed, so sellers are well-advised to mark these important dates on the calendar. For example, if the closing date in the contract is on or before May 5th, the sellers are in breach if they fail to close on that date absent justification permitted in the contract.
  • Items that are built-ins or are permanently affixed to the house are termed fixtures and are deemed to be part of the real estate. They are included in the purchase and sale contract. If you do not want to leave some items, itemize them in the contract.
  • The buyers typically have the right to do a structural inspector by a qualified inspector. The contract provides the dates by when objections must be filed with the seller, or the right to object is lost. Structural issues timely raised by the buyer can be completely remedied, or the seller can opt to repair some or none of the issues, and may negotiate with the buyer for a compromised settlement. The buyer can decline to buy the property if the structural issues are not addressed by the seller. Sellers can offer to give the buyers a credit at closing toward the repairs in lieu of making the repairs.
  • Be a prudent seller and have us review the contract before it is signed.

Closing Costs

  • Mortgages and any outstanding liens on the property must be discharged at closing in order to provide the buyer with marketable title. We will obtain payoff statements from your lenders and see that the liens are discharged, as appropriate.
  • Land Gains taxes and Withholding taxes, as applicable, are paid from the seller’s proceeds at closing.
  • Broker’s commissions are paid at closing.
  • Property taxes, condominium assessments, sewer district charges and heating fuel are pro-rated at closing by the attorney’s offices.
  • We can provide more details on the anticipated costs of closing.

The Closing

  • We prepare the new deed and all other documents required to convey the title to your property to the buyer, and we attend the closing to be sure your interests are protected.
  • The buyer will probably do a thorough walk-through of the structure before closing. If items of furniture or furnishings are included, make sure they are not inadvertently removed by your movers. One of the most common sources of fighting between buyers and sellers is an item that was not left as promised. Make sure the property is broom clean or you may pay a premium for cleaning services at the closing table.
  • If you are unable to attend the closing, we can act on your behalf by power of attorney at no extra charge.
  • It usually takes less than an hour to complete the sale of your property.

The above is provided for general information purposes only and is not intended to give legal advice. Legal advice should be sought from a qualified professional.

 

Lance C. Shader, P.C.
2 Mountain Park Plaza
P.O Box 2389
West Dover, VT 05356
P: (802) 464-5676; F: (802) 464-5688 | E-Mail