Rental Property Taxes in Vermont (2026 Guide)
Vermont is one of the more expensive states to hold a rental. Rentals are taxed at the higher non-homestead education property rate and get none of the income-based credit owner-occupants receive, the property transfer tax gives them no principal-residence discount, and Vermont decouples from federal bonus depreciation so you must add it back. Layer on a graduated income tax topping out at 8.75% with a minimum-tax floor, and the planning matters. Here is what Vermont landlords need for 2026.
In This Guide
- 1. Property Tax: the Non-Homestead Penalty
- 2. Graduated Income Tax (Top 8.75%)
- 3. The Capital-Gains Exclusion (and Its Limits)
- 4. Bonus Depreciation Add-Back
- 5. Property Transfer Tax (No Homeowner Break)
- 6. LLC Annual Report Fee
- 7. Rent Control
- 8. Security Deposit Rules
- 9. How SheltrIQ Helps Vermont Landlords
1. Property Tax: the Non-Homestead Penalty
This is the single most important Vermont landlord fact. Vermont funds schools through a statewide education property tax with two rates, and rentals get the worse one. By statute a homestead does not include any portion of a dwelling that is rented (32 V.S.A. 5401(7)), so a rental is non-homestead property:
- Homestead base rate — $1.00 per $100 of equalized value, adjusted by local school spending (32 V.S.A. 5402).
- Non-homestead base rate — $1.59 per $100, the higher rate that rentals pay. Your town's municipal tax is then layered on top of the education tax.
It gets worse: Vermont's income-based property-tax credit (32 V.S.A. 6066) is available only on a declared homestead. Rentals are excluded by definition, so they pay the full non-homestead bill with no income adjustment. Combined education-plus-municipal effective rates put Vermont rentals among the most heavily property-taxed in the country.
2. Graduated Income Tax (Top 8.75%)
Vermont has a graduated income tax of 3.35% / 6.6% / 7.6% / 8.75% (32 V.S.A. 5822), with the top marginal rate at 8.75%. Net rental income flows onto your Vermont return and is taxed at these rates. SheltrIQ's engine computes the exact liability, including Vermont's minimum-tax floor.
Minimum-tax floor: when federal AGI exceeds $150,000, Vermont charges the greater of your bracketed tax or 3% of federal AGI (32 V.S.A. 5822(a)(6)). A high-income year — say from a property sale — can trip this floor, so disposition planning matters.
3. The Capital-Gains Exclusion (and Its Limits)
Vermont offers a partial capital-gains exclusion (32 V.S.A. 5811(21)): you may exclude either a flat $5,000 of adjusted net capital gain, or 40% of net adjusted capital gain on certain assets held more than three years — capped overall at the lesser of 40% of federal taxable income or $350,000.
Be careful with the 40% option on a rental. The statute carves out residence-use real estate and depreciable personal property from the 40% exclusion, and Vermont has issued no public guidance squarely resolving how depreciable rental (Section 1250) real property is treated. The conservative position many filers take is to rely on the flat $5,000 exclusion rather than claim 40% on a depreciable rental — confirm your specific facts with a Vermont tax professional.
4. Bonus Depreciation Add-Back
Vermont decouples from federal bonus depreciation (IRC 168(k)). Vermont taxable income is defined as federal income determined without regard to 26 U.S.C. 168(k) (32 V.S.A. 5811) — so you keep the bonus federally but must reverse it for Vermont and depreciate on the regular MACRS schedule. Keep a separate Vermont depreciation basis so the two reconcile year to year.
5. Property Transfer Tax (No Homeowner Break)
Vermont charges a property transfer tax at closing (32 V.S.A. 9602). The headline rate is 1.25% of value, but a principal residence gets a reduced 0.5% on its first $200,000 — a break a rental does not receive. Non-principal-residence residential property can be taxed at 3.4%, so an investment home may actually pay more than the 1.25% general rate.
On top of the transfer tax, a clean-water surcharge of 0.22% applies (32 V.S.A. 9602a). The principal-residence exemption from the surcharge on the first $200,000 does not reach rentals — they pay the surcharge on full value.
6. LLC Annual Report Fee
A Vermont LLC must file an annual report with the Secretary of State within three months after its fiscal year-end (11 V.S.A. 4033). The fee for a domestic LLC is $45 (11 V.S.A. 4012(15)); a foreign (out-of-state) LLC registered in Vermont pays $170. Budget the annual report so the entity stays in good standing.
7. Rent Control
Vermont has no statewide rent control. Title 9, Chapter 137 (Residential Rental Agreements) sets no rent cap or stabilization scheme — its rent provisions are notice rules, such as the advance notice required before a rent increase (9 V.S.A. 4455). You set rents at market, subject to giving proper notice.
8. Security Deposit Rules
- No statutory cap on the deposit amount (9 V.S.A. 4461).
- Return within 14 days of discovering the tenant vacated or abandoned the unit, together with a written itemized statement of any deductions (9 V.S.A. 4461(c)).
- Seasonal rentals get a longer 60-day window — but the general residential rule is 14 days.
9. How SheltrIQ Helps Vermont Landlords
Vermont's rules carry several traps that quietly raise a landlord's tax — SheltrIQ keeps your return accurate:
- Graduated income modeling — applies the 3.35%–8.75% schedule and Vermont's 3%-of-AGI minimum-tax floor so a high-income or sale year is computed correctly.
- Bonus-depreciation tracking — flags the mandatory 168(k) add-back and keeps a separate Vermont depreciation basis.
- Disposition modeling — handles the transfer tax with no principal-residence break and applies Vermont's capital-gains exclusion conservatively given the depreciable-property limits.
- AI Schedule E classification — sorts each expense to the right line so your Vermont income starts from an accurate federal return.
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