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lwpat
lwpat, Attorney
Category: Real Estate Law
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I have received an offer to purchase our townhouse in Vermont.

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I have received an offer to purchase our townhouse in Vermont. It is a second home and we are residents of NY. The contract says that the purchaser will withhold taxes (10% federal and 2.5% State) of the purchase price at closing. Is this typical (or required)? I would expect the State of VT to withhold taxes for non-residents, but the Federal withholding and the purchaser getting involved is a surprise to me.
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This is typical and required.

When real estate is sold in Vermont, state income tax is due on the gain from the sale, whether the seller is a resident, part-year resident, or nonresident. If the seller is a nonresident, the buyer is required to withhold 2.5% of the consideration paid or to be paid for the real property and remit it to the Vermont Department of Taxes.

Exemptions from Real Estate Withholding
Exemptions from Vermont Real Estate Withholding may apply. The exemptions are listed in the instructions for Form RW-171, available on the Vermont Department of Taxes website. If this transfer qualifies for an exemption, check the appropriate box on the Withholding Certification section of the Property Transfer Tax Return, which may be filed online through the ePTTR service located on the Department of Taxes website. A Vermont Income Tax Return must be filed within the time prescribed for filing the federal income tax return. Any tax liability in excess of withholding must be paid by the seller with the return. Any excess withholding will be refunded to the seller by the Department of Taxes.

What sellers should do when filing the Vermont Income Tax Return
When filing the Vermont Income Tax Return, sellers will want to indicate the Vermont Real Estate Withholding amount as a credit on Line 31e, “VT Real Estate Withholding,” of the “Payments and Credits” section. The amount is shown on Schedule A, Line 12, on form RW-171, the Vermont Withholding Tax Return for Transfer of Real Property, which the buyer must complete and submit. The seller must also include a copy of the first two pages of the federal income tax return and any federal schedule that documents the income or loss from the Vermont sale.

Please note: The seller may obtain a copy of form RW-171 from the buyer at the real estate closing.

However, you are correct about the Federal withholding. That is for foreign nationals only so if you are a foreign national it would apply but not if you are a US citizen. Contact the attorney handling the sale. See

http://www.irs.gov/Individuals/International-Taxpayers/FIRPTA-Withholding

 

Hope this helps and thank you for allowing me to assist you today.

 

 

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